Diamond Bottoms

Core idea

A diamond bottom is a chart shape that first widens then narrows — a broadening top fused to a symmetrical triangle — appearing at the end of a downtrend. The pattern is named for its silhouette: if you draw trendlines along the minor highs and lows, the result looks like a diamond pushed to one side. Volume usually recedes from the start of the pattern through the breakout day, then spikes on the breakout itself.

What separates a diamond bottom from a diamond top is purely the inbound trend. Bottoms have price entering from above (downtrend → diamond → reversal up), tops have price entering from below (uptrend → diamond → reversal down). Same shape, different statistics. Bulkowski found 477 bull-market diamond bottoms (cataloguing began in 1991), of which 351 broke out upward (reversals) and 126 broke out downward (continuations of the downtrend).

Bulkowski's framing: Diamonds rank #1 for performance on downward breakouts among all chart patterns. The pattern quietly favors the bears even when it looks bullish.

Why it matters

Diamonds are hard to see and rare in the database, which is itself useful — anyone who can spot them has access to one of the strongest bearish setups on the chart. The pattern's symmetry of struggle (widening as bulls and bears battle for control, narrowing as one side tires) compresses a normally-multi-month reversal sequence into a single recognizable silhouette.

Even when the diamond bottom breaks out upward as expected, the average rise (below the 42% chart-pattern average) is modest. The asymmetry between upward and downward breakouts means that the trader's job is less about predicting direction and more about trading the direction that price chooses — diamonds reward post-breakout entries, not anticipation.

Why "two-diagonal" vs "single-diagonal" matters

Bulkowski distinguishes two-diagonal diamonds (both top and bottom trendlines slope) from single-diagonal diamonds (one trendline is roughly horizontal). Single-diagonal variants give a small directional clue: the breakout tends to occur in the direction away from the horizontal trendline. That's the only structural hint about which way price will break — useful enough to filter trades.

Key takeaways

Mental model

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Practical application

Example

A regional bank stock declines from $28 to $19 over four months. Over the next six weeks, price puts in higher highs at $21, then $22.50, then $23.20, while simultaneously putting in lower lows at $18.50, then $17.80 — the broadening phase. Then the swings tighten: lower highs at $22.50, $21.30, $20.50; higher lows at $18.40, $19.10, $19.60. Connect them and a diamond silhouette emerges, slightly pushed up and to the left.

Volume across the formation recedes from heavy early-pattern bars to thin volume at the apex. On day 42, the stock gaps up and closes at $20.90 on quadruple the recent average volume — an upward breakout. The trader buys at $20.90 with a stop at $19.40 (just under the lower trendline).

Over the following two weeks, the stock pulls back to $20.10 (a throwback near the apex), holds, and then rallies. Three months later it reaches $24.80 — a 19% gain, just below the typical bull-market diamond-bottom rise.

Had the trader spotted overhead resistance at $24 from earlier in the year's chart, they might have set a tighter profit-take just below it. Diamonds rarely run through dense resistance without a pause.

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