Your diagram gives the general idea about the HUP, which is that when a particle has well-defined momentum, it has a wave function that is widely spread (your blue wave), while a particle with a more localised wave function (your red wave) does not have a well-defined momentum. Where your diagram is wrong is that wave functions are 'normalised', so that they integrate over all space to the value of 1 - your blue wave therefore cannot have the same maximum amplitude as your red wave. However, that is not so important if you just want a general idea of how the HUP works.
The problem with your reasoning is that according to quantum mechanics, if you want to measure the position of a particle whose wave function is very spread-out (i.e. it has a reasonably well-defined momentum) you must subject it to some form of interaction that causes its wave function to change and become more localised. There are two important constraints here. Firstly, the localising happens at random, so the peak of the new wave function could be anywhere within the scope of the original wave function. The second is that the change in the shape of the wave function means that the particle no longer has a well defined momentum. Importantly, if you now want to measure the momentum again, you have to subject the particle to another interaction to change its wave function back to one that corresponds to a more tightly defined spread of momentum values, and when you do that there is a randomness to the effect, so that the new momentum you measure will not be the same as the earlier momentum associated with the particle before you tried to establish its position.
So the problem, therefore, is that to narrow down the momentum of a particle you must manipulate its wave function into one that is very spread out, which means that you are very unsure where the particle is. On the contrary, if you want to know where a particle is, you have to manipulate its wave function to be very localised, in which case it no longer has a well-defined momentum. And every time you cause the particle to switch between a localised or unlocalised wave function by performing an experiment on it, you introduce changes that are random in nature, so you can never really pin down the position and momentum together.
If you want a more mathematical insight...
The momentum of a particle is determined by the frequency of its wave function. The only type of wave that has a single frequency - i.e. that can be equated to a perfectly defined momentum - is a pure sine wave, which has to be spread-out everywhere (and is in effect an idealised mathematical abstraction).
The location of a particle can be anywhere where its wave function is non-zero, so in the ideal case of a particle whose wave function is a sine wave spread through all space, the particle could be anywhere.
In formal quantum mechanics, it is possible in theory to localise a particle at a point in space, in which case its wave function is a spike with an infinitesimally narrow width, known as a Dirac delta function, which does not have a frequency (so you cannot associate a momentum with it).
You can, however, express a delta function, or any roughly localised function such as your red wave, as a sum of lots of component waves, each component being a sine wave with a well-defined frequency. You can therefore think of your red wave as being a mix of sine waves, where the mix has a spread of frequencies.
What is especially beautiful and intriguing about quantum mechanics is that when you measure the momentum of a particle which is in a state represented by your red wave, i.e. one that has a mix of frequency components, you effectively force the particle's wave function to switch to become just one of those components, unpredictably, where the probability of the particle picking one component over another is related to how much each component figured in the mix of components that formed the red wave.