The Diamond or Rhombus trend reversal pattern: a dangerous signal for the trader

As promised last time, today, as part of the study of classical technical analysis for the stock market, I will tell you what happens when the insidious expanding formation merges with an equally insidious figure "symmetrical triangle". Although everything is simple here: a rare and little-studied on daily slices of Russian shares appears Diamond or Rhombus trend reversal pattern.

Фигура «Бриллиант»- правила построения

Фигура «Бриллиант» is outlandish, as the process of its formation takes a long time. Russian stock quotes are too emotional to stay in limited ranges for a long time. In the literature on classical technical analysis, you can see not only the conditions of formation and description of the Diamond or Rhombus pattern, but also learn what the market gurus think should be done when quotes leave the formation. Someone measures the diagonal of the figure and defers from the point of breakdown of one of the borders, someone is guided by the size of the diamond or rhombus. trendactual before entering the figure.

I prefer to trade what was and is! That is, I look at past and present charts to understand individual features of securities' behavior in this or that situation. I do not claim to be the truth in the last instance, because it is difficult for me personally to see Diamonds, and if I see them, it is on my working daily slices. On smaller scales there may be a slightly different development of events after the figure, but you will determine it yourself, if your trading strategy requires it.

Особенности практического применения паттерна «Бриллиант» на российском фондовом рынке

Итак, как выглядят и как реализуются паттерн «Бриллиант» на графиках российских акций?

Let's start with securities, which after appearance of Diamonds (Rhombuses) behave the closest to the classical idea of figures - these are shares of MMC Norilsk Nickel.

As you will see in the previous figures, after certain struggles MMC Norilsk Nickel shares traditionally returned to the beginning of the trend preceding the figure in question. The cunning of the "parents" of the figure ("symmetrical triangle" and "expanding formation") is noticeable here as well. On two of the three charts one can see false moves of the shares before they made a return movement.

Nevertheless, this is not the worst case scenario. A much more complicated situation developed after Brilliant and is still developing on Uralkali's chart.

Здесь сам паттерн «Бриллиант» как бы вышел из sidebarbut also carried "sideways". People, who made a classic bet on the growth of quotations after the breakdown of the resistance line of the Diamond figure, could suffer losses up to 10.4% by the current moment, and paper profits did not exceed 24%. It has been a year since the exit from the Diamond and volatility has decreased. The picture has taken a surprising shape: the old pattern has become a piece of the new Diamond. It is better to watch it on the weekly slice of the issuer.

On the weekly chart of Uralkali's sister company Akron, we can also see a Diamond pattern from early 2011 through March 2012. And it too has evolved into a larger formation.

If you want to try to find the Diamond (Rhombus) pattern yourself, there are large patterns on Sberbank's common and preferred shares from November 2009 through early 2013. I am sure you will not pass by them on a daily or weekly slice.

I apologize for the large theoretical part and a lot of charts, but I would like the conclusion to be self-explanatory. It is dangerous to trade within the action of the Diamond pattern. You should not be focused only on its breakout resistance lines or support. Wait for confirmation of the move from more iconic indicators, or stay away altogether until the upper and lower edges of the Diamond are broken.

Traditionally, I will give you the charts where you can observe the figures presented today in the moment and check our conclusions in practice.

The smeared Brilliant pattern on Novatek is controversial. But the main thing here is not beauty, but the philosophy of shaping the figure.

In the end, let's summarize, what signals does the Diamond figure give us? A warning, that there will be turbulence and discomfort in the papers where they appeared, both for speculators and investors. For understanding people such a warning is sometimes more important than a clearer signal to buy or sell shares.

Другие статьи мастер-класса «Фондовый рынок. Срез знаний»

• The "expanding formation" pattern teaches you not to relax
• A little more about TA figures: "triangle" or "head and shoulders"?
• Technical Analysis Figures "Triangles - Symmetrical and Expanding"
• "Flags" and "pennants": features of analyzing figures
• Stock market: life outside the box or what to do if stocks have left the intended trading channels