The Diamond Chart trading strategy is a reversal price action pattern which is rare to spot on the activity chart.

This pattern is triggered in the form of a diamond top (bearish signal) and diamond bottom (bullish signal), and usually marks a period of congestion before a new trend emerges in the market.

 Timeframes : All

Instrument : you can trade any instrument

Indicators : cci (Input Variable modified; InpMaPeriod = 40, InpVolatilityPeriod = 70, InpCCIPeriod = 60)

Long Entry Trading Rules :

• First step : If the Diamond Bottom price action pattern forms (shown by the points on the chart A, B, C & D), price is said to be in uptrend, hence the breakout is displayed in the chart.
• Second step : If the blue histogram of the cci_ custom indicator aligns above the 0.00 signal level, price is said to be experiencing somewhat bullish sentiment, thus a buy signal. Place a buy trade now.
• Stop Loss for Buy Entry: Then place stop loss 5 pips below mid-point between the measured distance between point B and C.

Take Profit or Exit for Buy Entry

• From the projected breakout point D, the take profit target is estimated as the distance between points B and C. In our example below, our take profit target was hit which is shown via the blue horizontal line drawn on the chart.
• If the deep pink histogram of the cci_ custom indicator gets aligned below the 0.00 signal level, price is said to be reversing from its current bullish stance, thus an exit or take profit is advisable.

Let us explain with a chart below:

Short Entry Trading Rules :

• First Step : If the Diamond Top price action pattern forms (shown by the points on the chart A, B, C & D), price is said to be on downtrend, hence the breakout is displayed on below chart.
• Second Step : If the dark pink histogram of the cci_ custom indicator aligns below the 0.00 signal level, price is said to be experiencing somewhat bearish sentiment, hence a sell signal. Place a sell trade now.
• Stop Loss for Sell Entry: Then Place stop loss 5 pips above mid-point between the measured distance between point B and C.

Take Profit or Exit for Sell Entry 

• From the projected breakout point D, the take profit target is estimated as the distance between points B. In the image, our take profit target was hit, shown as the point on the blue horizontal line drawn on the chart below.
• If the blue histogram of the cci_ custom indicator forms above the 0.00 signal level, price is said to be reversing from its current bearish stance, thus an exit or take profit is advisable.

Let us explain with a chart below:

Pros :

• The diamond top and bottom are reversal patterns that are used to pin bearish and bullish breakouts respectively.
• A diamond pattern is an advanced chart formation that occurs in the financial markets used for detecting reversals.

Cons :

• The biggest mistake a trader can make is trading too early before the diamond pattern gets formed completely. 
• Risk in trading a diamond pattern is in calculating and setting price targets and stop-losses.
• Identifying the Diamond pattern requires a sharp eye and lots of practice.