How to Trade the “Diamond Bottom” in Australian Dollar/Japanese Yen (AUD/JPY) Like a Pro

Introduction: The Hidden Gem of Forex Reversals

Imagine walking into a jewelry store and spotting a rare diamond at a bargain price—only to realize it’s been mislabeled. That’s precisely what happens when traders overlook the diamond bottom pattern in the Australian Dollar/Japanese Yen (AUD/JPY) pair. This formation is an underground gem in the Forex market—rare, powerful, and, when spotted correctly, highly profitable.

But most traders miss it, either dismissing it as noise or misinterpreting its signals. Let’s dive into how you can master this elite reversal pattern to catch massive price moves before the crowd even notices.

1. The Diamond Bottom: Forex’s Best-Kept Secret?

Most traders obsess over head and shoulders, double bottoms, and flags, but the diamond bottom often gets ignored. Why? Because it requires patience and a keen eye for pattern recognition. However, when correctly identified, it can signal an explosive bullish reversal—especially in a volatile pair like AUD/JPY.

What is the Diamond Bottom?

• A rare reversal pattern that signals the end of a downtrend.
• Characterized by a broadening formation followed by a symmetrical narrowing (think of a diamond shape).
• Typically forms after extended bearish pressure, creating an exhaustion point where buyers regain control.

2. Why AUD/JPY is the Perfect Playground for This Pattern

The Australian Dollar/Japanese Yen pair is an unconventional but excellent candidate for diamond bottom trading due to its unique characteristics:

• High Volatility: AUD/JPY often experiences sharp swings due to risk sentiment shifts, making it ideal for catching big reversals.
• Strong Fundamental Drivers: Economic trends in China, Australia, and Japan play a massive role in influencing price action.
• Frequent False Breakouts: Many traders fall for fake reversals—knowing how to confirm a diamond bottom eliminates unnecessary risk.

3. How to Spot a Diamond Bottom Before It’s Too Late

The biggest challenge with diamond bottoms is recognizing them early enough. Here’s a step-by-step method to identify them before the breakout:

Step 1: Identify the Broadening Formation

• Look for higher highs and lower lows forming a broadening wedge at the end of a downtrend.
• Volume should still be relatively high as volatility persists.

Step 2: Wait for the Contraction Phase

• The price starts forming lower highs and higher lows, tightening into a symmetrical shape.
• This signals indecision before a breakout.

Step 3: Watch for Volume and Breakout Confirmation

• A bullish breakout with increased volume confirms the pattern.
• Price should decisively break above the upper resistance of the diamond.

4. The AUD/JPY Diamond Bottom Strategy: Entry, Stop Loss & Take Profit

Entry Strategy:

• Enter long after a confirmed breakout above the diamond’s upper resistance.
• Use candle confirmation (preferably a strong bullish engulfing or a breakout with volume spike).

Stop Loss:

• Place your stop loss below the recent swing low inside the diamond.
• Alternatively, use ATR (Average True Range) x 1.5 as a volatility-based stop.

Take Profit Target:

• First target: The height of the diamond structure projected upwards.
• Second target: A key resistance zone, preferably based on a Fibonacci extension (1.618 is ideal).

5. Pro Tips: How to Avoid Diamond Bottom Fakeouts in AUD/JPY

Many traders fall for false breakouts, but you can avoid these traps by using:

✅ Volume Confirmation: A real breakout comes with a volume surge—weak breakouts without volume are fakeouts waiting to happen.

✅ DXY Correlation Check: The US Dollar Index (DXY) often hints at AUD/JPY moves. A weak USD typically boosts AUD—confirming the breakout’s legitimacy.

✅ Wait for Retest: If you missed the breakout, wait for a pullback to the breakout level before entering. This significantly improves risk-reward.

6. The Game-Changing Edge: Using Smart Tools to Automate Your Strategy

Manually tracking diamond bottom patterns in AUD/JPY can be time-consuming, but here’s how you can leverage technology:

???? StarseedFX Smart Trading Tool: Get automated lot size calculations, insights, and order management tailored to elite setups: Check it out here.

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Final Thoughts: Are You Ready to Master the Diamond Bottom?

Most traders ignore the diamond bottom because they don’t recognize its potential. But you now have the insider blueprint to trade it effectively—especially in high-volatility pairs like AUD/JPY.

✅ Know the pattern structure.

✅ Confirm with volume & technical indicators.

✅ Use smart tools to automate execution.

Don’t let this rare Forex gem go unnoticed—start spotting it before the masses and turn market noise into profit opportunities.

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Image Credits: Cover image at the top is AI-generated