The Diamond Top Formation: Cracking the Code on the Euro US Dollar’s Next Move

Why the Diamond Top on EUR/USD is a Big Deal (and Why Most Traders Miss It)

If you’ve ever misread a Forex chart and felt like you were trying to decipher an ancient treasure map, you’re not alone. The Diamond Top pattern is one of those elusive formations that traders often overlook—until it’s too late. And when it appears on a major currency pair like the Euro US Dollar (EUR/USD), you’d better pay attention because it could signal a major reversal that could either make or break your next trade.

But here’s the kicker—most traders don’t even know what a Diamond Top is, let alone how to trade it properly. That’s why this guide will unveil game-changing tactics, expert insights, and underground techniques that’ll give you a serious edge over the competition.

The Diamond Top: Forex’s Best-Kept Secret

The Diamond Top is a rare but powerful reversal pattern that typically signals the end of an uptrend. It’s characterized by a widening formation followed by a symmetrical contraction—kind of like a market tantrum that eventually settles down before reversing direction.

How to Spot a Diamond Top on EUR/USD Like a Pro

1. Broadening Formation – The price starts making higher highs and lower lows, forming an expanding shape.
2. Narrowing Contraction – The wild swings start calming down, and price action tightens up.
3. Breakout Confirmation – The price usually breaks below the support level of the pattern, confirming a bearish reversal.

This formation isn’t just an artistic masterpiece on your chart—it’s a massive warning sign that the uptrend is running out of steam.

Why Most Traders Ignore This Pattern (And Why You Shouldn’t)

Many traders dismiss the Diamond Top because:

• It’s not as common as head-and-shoulders or double tops.
• It requires patience to identify.
• The breakout doesn’t always happen instantly.

But this pattern has one major advantage: when it does show up, it often signals a strong trend reversal with high accuracy.

Insider Tip: Use the Relative Strength Index (RSI) and Volume to confirm your setup. If RSI is diverging and volume spikes on the breakout, the Diamond Top is likely legit.

How to Trade the Diamond Top on EUR/USD with Ninja-Like Precision

Once you’ve identified the Diamond Top, the next step is execution. Here’s how you do it:

1. Identify the Breakout Point

• Wait for price to break the lower boundary of the formation.
• A close below this level is your signal.

2. Enter Your Trade

• Short EUR/USD once the breakout is confirmed.
• Set a stop loss above the last swing high inside the pattern.

3. Target the Right Exit Points

• Conservative Target: The height of the pattern subtracted from the breakout point.
• Aggressive Target: Look for previous key support zones.

4. Manage Your Risk

• Risk no more than 2% of your account per trade.
• Use trailing stops to lock in profits as the price moves in your favor.

What the Experts Say About the Diamond Top

According to John Murphy, a legendary technical analyst, reversal patterns like the Diamond Top should never be ignored, as they indicate a shift in market sentiment that big players are already acting on.

Forex educator Adam Grimes also emphasizes that traders who master pattern recognition gain a significant edge over those who only rely on indicators.

Real-World Example: Diamond Top in Action on EUR/USD

In September 2022, the EUR/USD formed a perfect Diamond Top around 1.0300, signaling a potential reversal. Many traders dismissed it as noise, but those who understood the setup went short—and rode the price down nearly 300 pips as the breakout unfolded.

Key Takeaways from This Setup:

• The breakout happened on increased volume—always a strong signal.
• RSI was diverging, hinting at weakening momentum.
• Smart money started positioning ahead of retail traders.

Advanced Tactics: How to Use Smart Money Insights to Your Advantage

The big institutions don’t just react to Diamond Tops—they anticipate them. Here’s how you can align with the smart money:

1. Watch the Commitment of Traders (COT) Report – If institutional traders are cutting long positions on EUR/USD while a Diamond Top is forming, that’s a red flag.
2. Check Sentiment Indicators – If retail traders are overwhelmingly bullish, it’s usually a sign that a reversal is imminent.
3. Use Price Action Confirmation – Look for bearish candlestick patterns like engulfing candles at the breakout point.

Final Thoughts: Why the Diamond Top Should Be in Every Trader’s Playbook

The Diamond Top may not be the most famous pattern, but ignoring it is like ignoring a red traffic light—it usually doesn’t end well. If you can spot this formation and trade it properly, you’ll be one step ahead of 90% of traders who are too busy chasing lagging indicators.

✅ Key Takeaways:

• The Diamond Top is a powerful reversal pattern that signals trend exhaustion.
• Volume and RSI can help confirm a valid setup.
• Smart money traders use this pattern to anticipate major moves.
• Executing trades with patience and discipline is the key to success.

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