Every girlfriend be happy, if her boyfriend present a diamond ring when they get engaged to one another. Emotion is not good for traders. Traders must be rational in their actions. I am going to write this post to explain the way to trade diamond chart pattern.
As the name suggests, a diamond chart pattern indicates a upon breakout of the pattern. A diamond pattern is composed of levels. In case of breakouts of a diamond chart pattern, the line through the resistance points is broken.
A diamond pattern can be part of a trend reversal or continuation. When a diamond chart pattern appears after a , it indicates trend continuation. On the other way, when a chart pattern appears after a , it indicates trend reversal.
diamond pattern can be found on the charts of any time frames, but the diamond chart pattern on the larger time frame chart is more reliable. In the above price chart, we can see a diamond chart pattern is formed and broken by the price.
Identifying the reliable breakout of any pattern is very crucial in successful trading. We generally know two rules of a reliable breakouts. Firstly,a reliable breakout happens when a candle opens out of the area. Secondly, the should be increased when the breakout takes place.
In addition to the above rules, I am going to introduce my own technique to identify a reliable breakout. The rule is that a breakout is considered to be reliable, if the price moves above the 20 moving average (any types) and histograms turn into positive territory while making the diamond pattern breakout. I found this technique very effective in trading.
If you have any question regarding this post, you can drop it into the comment section below. I generally response to your comments within 24 hours.
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