Diamond Formation
A diamond can form as either a top or a bottom. It is a reversal signal, but, like all reversals, it requires confirmation. Even with confirmation, the next step is not always clear. Once a reversal begins, the question is whether it’s a false move or can be confirmed. An example is found in Figure 6.10.
Figure 6.10 Diamond formation and confirmation (Chart courtesy of StockCharts.com)
Price moves up dramatically beyond the 2012 range-bound trading between $39 and $45, forming a diamond top in the first eight months of 2013. As expected, a very strong reaction follows, taking prices down to the newly established support. ...
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