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7 Ways to Tell a Stock Is Headed Down

Learn how to spot bearish chart patterns

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Diamond Top

Diamond Top Chart Pattern

Diamond patterns usually form over several months in very active markets, and volume remains high during the formation of this pattern. The diamond top pattern occurs because prices create haigher highs and lower lows in a broadening pattern until prices break downward out of the diamond formation.

With a diamond top, you need to consider the duration of the pattern and its relationship to your trading time horizons. The longer the pattern, the longer it will take for the price to move to its target. The shorter the pattern, the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.

The inbound trend is an important characteristic of the pattern. A shallow inbound trend may indicate a period of consolidation before the price move indicated by the pattern begins. Look for an inbound trend that is longer than the duration of the pattern. A good rule of thumb is that the inbound trend should be at least two times the duration of the pattern.

Article printed from InvestorPlace Media, http://investorplace.com/2012/10/7-ways-to-tell-a-stock-is-headed-down/.

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