The Hidden Market Signals: Hull Moving Average Meets the Diamond Top Pattern

Why Most Traders Get It Wrong (And How You Can Avoid It)

The Forex market is full of mysterious signals, complex patterns, and traders who treat technical indicators like a magic wand. But let’s be honest—if trading was as simple as following a generic moving average crossover, we’d all be retired on a private island by now.

Enter two of the most underrated tools in your technical analysis arsenal: the Hull Moving Average (HMA) and the Diamond Top pattern. When combined, they form a lethal combo that can outmaneuver even the sneakiest market traps.

Let’s uncover how these hidden gems can give you an elite trading edge.

The Hull Moving Average: Smoother, Faster, Better

If you’ve ever used the standard moving averages—SMA, EMA, or even the fancy Weighted Moving Average—you’ve likely been frustrated by lag. That’s where the Hull Moving Average (HMA) shines.

What Makes HMA Different?

• Smoother than an EMA, faster than an SMA. HMA was designed by Alan Hull to eliminate lag while maintaining responsiveness.
• Dynamic Adaptation. Instead of reacting late, it quickly adjusts to market moves, reducing whipsaws.
• Perfect for trend confirmation. Unlike traditional MAs, it catches trend shifts before they become obvious.

How to Use It Like a Pro

1. Trend Identification: When the HMA slopes up, the trend is bullish; when it slopes down, the trend is bearish.
2. Entry Signals: A price crossover with the HMA can confirm a trade entry.
3. Exit Points: Use HMA crossovers with different periods (e.g., HMA(21) crossing HMA(55)) to time exits efficiently.

⚠️ Pro Tip: Avoid using HMA in ranging markets; it works best when paired with a breakout strategy.

Diamond Top Pattern: The Sneaky Reversal Sign

The Diamond Top is the pattern that institutions don’t want you to notice. It’s rare, but when it forms, it signals a massive market reversal—usually before the average trader catches on.

How to Spot It

• Appears after an uptrend, resembling a diamond shape on the chart.
• Starts with broad price swings that gradually narrow.
• Signals exhaustion and a likely breakdown.

How to Trade It

1. Identify the Pattern: Look for a wide structure forming after a strong bullish rally.
2. Wait for the Breakdown: When price closes below the support of the diamond, enter a short trade.
3. Set Smart Targets: The minimum target is the height of the pattern projected downward.

???? Elite Tactic: Use the HMA to confirm the breakdown. If HMA is sloping downward as the diamond breaks, it’s a high-confidence short setup.

Combining HMA & Diamond Top for Maximum Impact

Now, let’s put the pieces together. Here’s how you can use these two tools as a secret trading weapon:

1. Step 1: Identify a Diamond Top Formation. Look for the structure after a strong bullish trend.
2. Step 2: Watch the Hull Moving Average. If HMA starts to turn down before the breakdown, it confirms weakness.
3. Step 3: Enter the Trade. Once price breaks below the diamond’s support, enter a short trade.
4. Step 4: Manage Risk. Place a stop-loss above the recent high inside the diamond pattern.
5. Step 5: Take Profits Smartly. Use a risk-reward ratio of at least 2:1, targeting key support zones.

???? Insider Secret: If the HMA flattens out before the breakdown, it could be a false signal—wait for extra confirmation before jumping in.

Real-World Example: The EUR/USD Breakdown

In late 2023, EUR/USD formed a Diamond Top on the 4-hour chart after a bullish rally. While most traders were still going long, a few sharp-eyed pros noticed something different:

• HMA(55) turned downward before the price broke down.
• The pattern completed, and EUR/USD tanked by over 150 pips in just 24 hours.
• Those who combined the Diamond Top with the Hull Moving Average got in early and rode the move like a pro.

???? Lesson: Had you only looked at price action, you might have hesitated. But with HMA confirming the reversal, it was a textbook trade setup.

Final Thoughts: Why This Combo Works

???? Fast Response Time: HMA helps you react before price fully reverses.

???? High-Confidence Entries: Diamond Tops don’t form often, but when they do, they signal powerful reversals.

???? Avoid False Breakouts: Using HMA as confirmation reduces your chances of getting faked out.

If you’re serious about improving your trading game, mastering these two together can be a game-changer.

Want to Go Deeper?

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