Diamond Top on GBP/JPY Daily Chart

It is the first time I write about a diamond top/bottom formation, though I have mentioned diamond in my Forex chart patterns overview. This one looks so obvious to me that I have thought that it is time to try out something new. This GBP/JPY instance on a daily chart is a nearly perfect example of a diamond top pattern. It is slightly sloped, but otherwise it fits well. It is also long-term enough to be noticed by thousands of other traders. The first candlestick printed back on January 2 — the first trading day of 2013.
The image below shows the pattern marked with yellow dashed lines. Since diamond top is a reversal pattern, only a bearish breakout is considered. Cyan line marks my entry level, which is simply based on the minor support level. As my usual rules for trading chart pattern do not work with diamonds, I put my target (green line) near the next major support level close to the “launching site” for a rally, which predated the pattern formation. I set my stop-loss (red line) to most recently confirmed minor resistance zone. The logic here is to minimize the risk in case of a rather probable pull-back. 193 pips is not a small amount, but the target is 840 pips away, so the reward is worth the risk, in my opinion.

You can download my MetaTrader 4 chart template for this GBP/JPY pattern.
You can read more about trading diamond tops on Thomas Bulkowski’s site.
Update 2013-04-01 7:52 GMT: Sell position opened at 141.88 at 7:26 GMT.
Update 2013-04-04 8:16 GMT: Stop-loss hit at 143.84 on a major reversal about two hours ago.
Update 2013-04-13 10:29 GMT: By the way, even though the pattern failed at a reversal breakout, it managed to act as a half-staff continuation diamond top. You can read more about this outcome on Bulkowski’s site (see the link above.)

If you have any questions or comments regarding this diamond top on GBP/JPY chart, please feel free to submit them via the form below.