Level 1
The first level is the diminished triad.
Diminished triads use the minor formula but with a diminished fifth interval.
You’ll see this written as 1 ♭3 ♭5
Diminished 5th intervals span six half steps.
This is where the triad gets it’s name from.
Diminished 5th intervals are also known as augmented fourth or tritone. This is because 6 half steps or semitones are equivalent to 3 whole tones.
If you know what a perfect fifth note is you can drop it by half a step and arrive at the diminished fifth.
Diminished triads occur naturally in major and natural minor keys.
In major keys the vii chord is diminished and in natural minor or aeolian the ii chord is diminished.
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Level 2
Level 2 is the half diminished chord.
This is a chord with the notes I ♭3 ♭5 and ♭7
It is represented by the degree symbol with a line through it. You may also see a 7 after this symbol.
This chord can also be arrived at from a different angle.
Minor seventh chords are constructed with the notes I ♭3 5 and ♭7
If you drop the 5th note by half a step, then you create the half diminished chord.
For this reason, you’ll often see these chords called minor 7 ♭5, which is useful as the name describes the chord formula.
Here's an A minor key example of this chord in action, creating a smooth lead to the V chord.
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Level 3
The third level is the full diminished 7th chord.
There’s an interval, called a diminished seventh which you can also add to the diminished triad.
Where the minor 7th interval was 10 semitones in size, the diminished 7th is 9 semitones or half steps.
It is written as ♭♭7 to indicate this.
You might know an interval of this distance as a major sixth. This is correct, but in this context it is called a diminished seventh interval.
Add this to the diminished triad and you have the chord formula - 1 ♭3 ♭5 ♭♭7
This constructs a diminished 7th chord. Diminished seventh chords are notated with the small circle or degree followed by a 7. It can also be written as dim7.
There is an interesting and powerful aspect of the diminished 7th chord. It is completely symmetrical.
By that I mean that the distance between each note is the same. It is a minor 3rd interval, or 3 half steps.
Diminished 7th chords do not occur diatonically in Ionian / Major keys or Aeolian / Natural Minor keys.
They do feature as the 7th chord in harmonic minor.
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The Chameleon
There are only 3 unique sets of diminished 7th chord notes.
This chameleon nature of the diminished 7th chord means that they are powerful when looking to change key or modulate.
If you take any diminished 7th chord, and drop one of the notes by half a step, then you have the notes for a dominant 7th chord.
To change key all you need to do is play the diminished 7th chord before one of the four dominant 7th chords that it shares 3 notes with. This acts as a tunnel into the relevant key.
For example, say I have a simple I IV V progression in the key of C major. If after this I then play the Bdim7 chord, I can now choose one of the remaining 7 keys to modulate to. Say I want to move to A major. The V chord in A major is E7. So if I play that after Bdim7 and then play the tonic I chord of the new key, the key change is established quickly and smoothly.
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If you want to learn more you can click here to watch a YouTube video exploring these ideas.