In this video we take a look at Diamond tops and bottoms.
Now these formations basically and they can.
They don't have to be a perfect diamond.
I just happened to be drawing one.
You know they can look more like this.
What happens is you get a run and this is a top obviously and this might be the bottom.
Diamond bottom.
You get a run higher in the market and then you start to form a couple of it's like a broadening formation.
That we talked about a couple of videos ago but then starts to tighten back up.
And then once you break down what this tells you is that there's been a lot of soul searching in the
market so to speak and suddenly there's bearish pressure bearish pressure that people are willing to
really get involved in.
And everybody in this diamond is trapped.
So the market needs to break down.
They need to cover their positions in a downtrend.
You can see the exact same thing but then an explosive move up and that of course is a diamond bottom.
Now there's no real measuring stick in these.
A lot of people will try to aim for the highs that typically works out but there isn't like a bonafide
measuring stick if you will like you have with some other type of patterns that we'll be going through
in this module.
So let's take a look at what this looks like.
Go ahead and pull up the trend line tool and you can see that we have seen a lot of noise in this area
and I can draw trend lines
like this like so to form the pattern itself.
And you know we're in a nice uptrend and then we start to lose a little bit of confidence and then we
finally break back down.
You can see that we test that the midpoint of the triangle and then break or the diamond and then break
down from there as well.
So the question is you know what would you aim for.
Well this is about a dollars so eight dollars from 70 3.
You know that's got you right around 65 ish.
And that's where you do end up and now you've gapped lower and you're starting to see more resistance
so clearly that is a viable signal now here in Teva Pharmaceuticals.
We have a bottom and it's you know kind of a sloppy in some of these will be you'll see this occasionally
go ahead and extend this out just a little bit more.
And there you go it's a diamond bottom and what's happened is we've sold off and then there's just a
lot of indecision.
And then we broke higher.
Now something that I'll point out here not to make this more complicated and it needs be because you
know we got basically our height.
But another thing and you'll see this a lot as you go along and this makes the these type of signals
even more important notice that
we have higher lows going into the exiting as well you know we we continued the downtrend that shows
that there is still a bit of conviction.
But the next time we make this higher low then all of a sudden you've got people kind of wondering whether
or not we can hang on and so a lot of that comes to short covering and eventually we break out to the
upside.
Diamond patterns and tops and bottoms are a little bit more difficult to trade than some of the other
patterns.
The main takeaway here is you need to keep in mind that it's a loss of confidence in the overall trend.