The diamond chart pattern can signal a bullish or a bearish reversal or continuation of an existing trend. It represents a temporary battle between buyers and sellers. At its last part (lines E and H below) it is formatted from consecutive lower highs (indication that sellers have the upper hand) and simultaneously consecutive higher lows (indication that the buyers have the upper hand), which is a mixed (battle) situation and it looks exactly like a symmetrical triangle. Below we can see a diamond pattern in the 1 minute chart of the currency pair EUR/USD.
Because of the fact that the diamond pattern can signal continuation or reversal, the entry point is when the price will break the upper or the lower line (E or H on the EUR/USD chart).
The profit target is when the price meets the projection of line A (blue line B) which behaves as a resistance line. According to classical technical analysis the target can also be set by the distance between the upper and the lower top of the diamond, which is a more mathematical approach ignoring the price behavior and peculiarities of each individual chart.
Of course, irrelevantly of the profit target someone must manage the trade by continuously readjusting the stop order according to his/her trade and risk management rules in order to protect profits.
Diamond patterns can be applied in every time frame and in every asset class with adequate liquidity (stocks, futures, forex etc).
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