Technical Definition
The Diamond Bottom pattern is a bullish reversal pattern that typically forms after a prolonged downtrend. It is characterized by an initial broadening structure (expanding volatility) followed by a contracting formation, together creating a diamond-like shape. This pattern reflects a transition from bearish dominance to accumulation and finally to bullish control. A decisive breakout above resistance confirms the reversal.
It looks like a diamond at the bottom of a chart. It combines a "Megaphone" (expansion) and a "Triangle" (contraction). It shows the market calming down after a panic before shooting up.
Extreme volatility often appears near market bottoms
Market Psychology
Capitulation
Fear dominates. Sellers push prices lower aggressively.
Panic Volatility
Wide price swings reflect emotional exits and forced liquidation.
Accumulation
Strong hands quietly absorb supply as volatility contracts.
Resolution
Resistance breaks, confidence returns, and a sustained uptrend begins.
Pattern Anatomy
Expansion
Price makes lower lows and higher highs (Broadening bottom).
Transition
Volatility peaks, selling exhaustion.
Contraction
Price marks higher lows and lower highs (Symmetrical triangle).
Breakout
Price breaks the diagonal resistance of the contracting phase.
Pattern Rules
Prior Trend
A clear downtrend must exist.
Expansion
Price must form a broadening structure first.
Contraction
Price must narrow after the expansion phase.
Shape
The diamond shape should be visually clear.
Breakout
Breakout above resistance confirms the reversal.
Tactical Execution
Buy on breakout
Stop loss below bottom
Target height of diamond mapped up
Signal Confirmation
- Strong bullish candle closing above resistance
- Expansion in volume on breakout
- Price holding above the diamond structure
- Higher highs and higher lows after breakout