Might be better to use MDF with diamond paste.
The problem with that is that MDF is really very, very soft so a combination of the lubricant in the paste wetting the MDF and the softness that nice flat surface might last as long as 30 seconds..... To grind steel you need an abrasive and ideally a lubricant of some description (to carry away the swarf and to prevent clogging) so that makes float glass or a flattened steel plate two of the best grinding surfaces
I'm using 10mm float glass resting on my hop up. That's not my plane iron in the photo but it's the exact problem I'm having so maybe I'm using to much pressure. What diamond plate do you use as the two I have are rubbish.
I use ITS diamond hones. Relatively cheap but serviceable without costing an arm and a leg - after all joinery isn't keyhole surgery, is it! I use a paraffin-based industrial lapping compound to "float off" the swarf and keep the diamond surfaces clean (never, ever use water - it encourages rust) - real paraffin will do just as well, but is an awful lot niffier. Note that you don't need to flatten the entire back of the iron - the bottom 1 to 1-1/2in up from the cutting edge is sufficient. You can check the cutting action by wiping the iron clean, blacking the back with a large chisel tip marker then doing your flattening. That will tell you what isn't flat (it shows up as still black) - and not all plane irons are flat. The process can be repeated several times but that 120 grit alox paper you are using is fairly slow working, so if after the first couple of strokes you have an unground area it may be that you need to use a coarser grit to get it flat first.
If you go away and do that and come back an post a photo it may be possible to tell you where things are going wrong
BTW, what is the history of the iron (new. old, been flattened before, first time, etc)? Is this the first time you've ground it? What grit did you start with?
Edit: There have been additional responses whilst I was writing this, so, it looks like the cutter has a thin spot. The only way to deal with it is to use a coarser grit (say 40 or 60 grit in a carborundum or silica carbide paper) and flatted with that first before working up through the grits.