I don't think the problem is in the formation. Logically your narrow diamond should be able to mark the opponents two STs and the AMC. Your AMC should logically be free of marking and your 2 STs only marked by 3 defenders. I think the opponent's quality and the order plays larger role on your loss.

If I were you I would play more defensive mentality due to the quality difference with short passing through the middle and force counter attack. I would use my favorite formation 4-1-3W-2 or your narrow diamond.