《How To Trade the Bear Diamond Pattern》.doc
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How To Trade the Bear Diamond Pattern
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Its best used in the forex markets, but the diamond top formation can accurately point out impending retracements, and its easy to piece together.
For years, market aficionados—and especially forex traders—have been using simple price patterns not only to forecast profitable trading opportunities, but also to explain simple market dynamics. As a result, common formations such as pennants, flags, and double bottoms and tops are often used in the currency markets, as well as many other trading markets.
A less talked about, but equally useful, pattern that occurs in the currency markets is the bearish diamond top formation, commonly known as the diamond top. In this article, well explain how traders can quickly identify diamond tops in order to capitalize on various opportunities.
The diamond top occurs mostly at the top of considerable uptrends. It effectively signals impending shortfalls and retracements with relative accuracy and ease. Because of the increased liquidity of the currency market, this formation can be easier to identify in the currency market than in its equity-based counterpart, where gaps in price action frequently occur, displacing some of the requirements needed to recognize the diamond top.
This formation can also be applied to any time frame, especially daily and hourly charts, as the wide swings often seen in the currency markets will offer traders plenty of opportunities to trade.
Identifying and Trading the Formation The diamond top formation is established by first isolating an off-center head-and-shoulders formation and applying trendlines dependent on the subsequent peaks and troughs. It gets its name from the fact that the pattern bears a striking resemblance to a four-sided diamond.
Lets look at a step-by-step breakdown of how to trade the formation, using the AUD/USD currency pair in the chart below. This example is in currency, but this type of chart pattern is a great indicator in any li
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