Diamond Chart Forex Trading Strategy

The Diamond Chart forex trading strategy is a reversal price action pattern that is relatively rare to spot on the activity chart.

Howbeit, the pattern is triggered in the form of a diamond top (bearish signal) and diamond bottom (bullish signal), and usually typifies a period of congestion before a new trend emerges in the market.

Chart Setup

MetaTrader4 Indicators: cci_.ex4 (Input Variable modified; InpMaPeriod = 40, InpVolatilityPeriod = 70, InpCCIPeriod = 60)

Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, Day

Recommended Trading Sessions: London, New York, Tokyo

Currency Pairs: All pairs with maximum spread = 5 pips

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Buy Trade Example

Fig. 1.0

Strategy

Long Entry Rules

Initiate a buy entry if the following indicator or chart pattern gets displayed:

  1. If the Diamond Bottom price action pattern forms (depicted by the points on the chart A, B, C & D), price is said to be on its way up, hence the breakout displayed on Fig. 1.0. Our target is the measured distance between the points B (low) and C (high), projected from the break out of D, howbeit, price is seen to push even higher if you move the chart further along.
  2. If the blue histogram of the cci_ custom indicator aligns above the 0.00 signal level, price is said to be experiencing somewhat bullish sentiment, hence a buy signal.

Stop Loss for Buy Entry: Place stop loss 5 pips below mid-point between the measured distance between point B and C.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following rules or conditions hold sway:

  1. From the projected breakout point D, the take profit target is estimated as the distance between points B (1.08502) and C (1.09041), approximately 53 pips. We then set our take profit target at 50 pips, from the candle open on the breakout point D. Our take profit target was breached, shown via the black horizontal line drawn on the chart.
  2. If the deep pink histogram of the cci_ custom indicator gets aligned below the 0.00 signal level, price is said to be reversing from its current bullish stance, hence an exit or take profit is advised.

Sell Entry Rules

Enter a sell in the market if the following chart or indicator pattern takes shape:

  1. If the Diamond Top price action pattern forms (depicted by the points on the chart A, B, C & D), price is said to be on its way down, hence the breakout displayed on Fig. 1.1. Our target is the measured distance between the points B (low) and C (high), projected from the break out of point D.
  2. If the dark pink histogram of the cci_ custom indicator aligns below the 0.00 signal level, price is said to be experiencing somewhat bearish sentiment, hence a sell signal.

Stop Loss for Sell Entry: Place stop loss 5 pips above mid-point between the measured distance between point B and C.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following holds true:

  1. From the projected breakout point D, the take profit target is estimated as the distance between points B (1.09476) and C (1.10213), approximately 73.7 pips. We then set our take profit target at 73 pips, from the candle open on the breakout point D. Our take profit target was breached, shown as the point on the black horizontal line drawn on the chart (refer to Fig. 1.1).
  2. If the blue histogram of the cci_ custom indicator forms above the 0.00 signal level, price is said to be reversing from its current bearish stance, hence an exit or take profit is advised.

Sell Trade Example

Fig. 1.1

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About The Trading Indicators

The cci_ custom indicator is a modified Commodity Channel Indicator that combines with the moving average and is used to gauge price volatility.

The diamond top and bottom are reversal patterns that are used to pin bearish and bullish breakouts respectively.

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