Diminished chords is also called dim chords. They can be written with a small circle. They are build on the seventh step in the major scale, and is build of small thirds.
Diminished chords is often played as tetrads. The diminished chord in the key of C-major is Bdim7, (BDFAb).
The chord can be turned around as you wish. E.g. Bdim7 can be played with a B as the highest note: (DFAbB)
Let's look at how to apply the diminished seventh chords in a typical progression.
All the notes of a diminished seventh chord can serve as a guide tone. This means that you can dissolve each note in a diminished seventh chord up a semitone, and then play a major or minor chord on the tone.
The key is G-major and vi add a dim7 between 1st and 2nd step. G#dim7 has the bass-note on the sixth string.
The key is C-major and the progression is IIVI, but we have switched V to a VII whitch is a dim7 chord. Notice that we play the dim7 chord with a D as the bass-note.
The key is C-major and a dim7 chord is added between the 1st and 2nd step. C#dim7 is played with the root on the 5th string.
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