Two rare patterns where the market loses its balance: the swings get wider and then — in a diamond — narrow again. Here is how to spot them and why they should only be traded after the breakout.
Each high is higher and each low lower — the lines diverge.
Diamond
First expansion, then contraction: the shape looks like a diamond. Most common at tops.
What they mean
Uncertainty and emotion: the market swings wildly before changing direction.
Entry
Only after a breakout with a close: inside the pattern the swings are chaotic.
The broadening triangle
An ordinary triangle is a squeeze. A broadening one is the opposite: the swings grow, each new high above the last, each low below. That's what a market looks like when participants are nervous and stops get hunted on both sides. At the top of a trend it often warns of a reversal.
The lines diverge, the swings grow, then price breaks the lower boundary. Illustrative data.
The diamond
A diamond combines two patterns: first a broadening triangle, then an ordinary converging one. Nervousness gives way to calm, followed by a strong move. A bearish diamond appears at tops, a bullish one at bottoms.
A diamond top: the swings first grow, then contract, and price breaks the lower right boundary. Illustrative data.
How to trade them
01
Make sure the pattern is clear without forcing it
At least two touches of each boundary.
02
Don't trade inside
The swings are chaotic and stops get hit both ways.
03
Enter after a breakout with a close
For a diamond, a break of one of the converging right-hand boundaries.
04
Stop beyond the last swing inside the pattern
Not beyond the far boundary, or the stop gets too large.
05
Target the height at the widest point
Projected from the breakout point.
These patterns are rare, and people often "find" them where they don't exist. If you have to adjust the lines for a long time, skip it: ordinary levels and structure will give a cleaner signal.
Common mistakes
Trading bounces inside a broadening triangle
Every new extreme breaks the previous one — stops get hit constantly there.
Entering before the breakout
The pattern can resolve either way.
Confusing a diamond with head and shoulders
The shape is similar, but a diamond's boundaries converge on the right. Both are traded after the lower line breaks.
Don't want to sit in front of charts?
The waytolambo bot sends ready-made signals: entry zone, stop and five take-profits. All you decide is whether to take the trade.