The Diamond Top is a rare but highly reliable bearish reversal pattern that forms at market peaks after an extended uptrend. In the first phase, price ranges expand — making progressively higher highs and lower lows. In the second phase, price ranges contract — making lower highs and higher lows. Together the two phases trace a diamond or rhombus shape on the chart. A close below the lower-right boundary confirms the bearish breakdown.

How to Identify

• Forms at the top of an established uptrend lasting months
• Phase 1 (expanding): higher highs and lower lows — price action broadens visibly
• Phase 2 (contracting): lower highs and higher lows — price action narrows like a wedge
• Together the highs and lows trace a diamond (rhombus) outline on the chart
• Volume is typically erratic and elevated during Phase 1, then contracts in Phase 2
• Breakdown occurs when price closes below the lower-right boundary line of the diamond
• Breakdown with a volume surge significantly increases reliability
• Price target: measure the widest vertical distance of the diamond and project it downward from the breakdown point
• Pattern takes 4–12 weeks to develop on daily charts

Market Psychology

The expanding phase reflects increasing uncertainty at the top — bulls and bears fight aggressively, creating wild price swings. Neither side can establish control. The contracting phase shows the battle exhaustion: both bulls and bears grow less committed, volatility falls, and the pattern tightens to a resolution point.

The breakdown is the verdict: sellers win the standoff. Because the pattern is less well-known than Head and Shoulders or Double Top, the breakdown often catches participants off guard and can result in sharp, fast moves down.