What it means
Diamond patterns form when a broadening formation (higher highs + lower lows) transitions into a contracting formation (lower highs + higher lows), creating a diamond shape. Most common at major tops. Confirmed on close below the support boundary (top diamond) or above resistance (bottom diamond). Rare pattern but high-reliability when correctly identified.
Why it matters
Diamonds form during periods of rising disagreement between buyers and sellers (broadening) followed by indecision/exhaustion (contracting). The structural story: panic-driven volatility expansion gives way to exhaustion before a directional resolution. Rare enough that most traders don't recognize them — which is itself part of the edge.
How to use it
Require both phases visible: clear broadening expansion followed by clear contracting consolidation. Confirmation: daily close beyond the relevant boundary with volume. Target = widest part of the diamond projected from breakout.
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