Diamond Top Price Patterns

Price patterns are used to determine profitable trading opportunities and explain simple market dynamics. There are many common price pattern formations. A less common, but very useful one used in the forex market is the bearish diamond top formation, also known as the diamond top. The diamond top usually occurs at the top of considerable up trends and signals impending shortfalls and retracements with relative accuracy and ease. This type of formation is easier to identity than its equity-based counterpart where gaps in price action frequently occur, displacing some of the requirements needed to recognize the diamond top, because of the increased liquidity of the foreign exchange market. The diamond top pattern 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. The diamond top pattern is established by first isolating an off-center head and shoulders formation and applying trend lines 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.