The Turn-Key Reversal is different from a Double Key Reversal in that it is a key reversal reversing a key reversal that has reversed a previous key reversal (up-down-up or down-up-down). Assume an uptrend and an initial downward reversal for the current discussion.

Crucial Turns The Turn-Key Reversal carries much more weight if the fourth day also closes below (above) the third day’s low (high) and/or the second day’s close.

The pattern begins with a high above the previous day’s high and a subsequent close below the preceding day’s close (creating a standard key reversal). The ensuing day trades below the second day’s low but reverses higher, ultimately settling above the second day’s close (an alternating key reversal) but not above the highest close.

The fourth (trigger) day exceeds the previous day’s high – and often the second day’s high – and closes below the previous day’s settlement price, creating a third successive (and alternating) key reversal. The difference between a Double Key Reversal and a Turn-Key Reversal is that a Double Key Reversal involves both reversals occurring in the same direction whereas a Turn- Key Reversal includes reversals in opposing directions.

This pattern carries much more weight if the trigger (fourth) day also closes below the third day’s low (also generating an outside-day reversal) and/or the second day’s close (two closes prior to the current day, creating a reinforcing 2 Close Reversal).

Additional details & diagrams can be found in Eric Hadik’s Tech Tip Reference Library

The Double Key is a pattern that appears commonly in the S+P – at significant turning points. One occurrence appeared in the S+P, two weeks before the early-August 1997 high (and the largest correction in over 7 years that followed this pattern). Another example occurred in early-1997, in the Silver market, and identified a critical low in mid-January.

Double the strength A Double Key Reversal pattern is made up of a basic key reversal reinforcing a preceding key reversal in the same direction – with the second overlapping the first.

The Double Key Reversal, as its name describes, is a pair of overlapping key reversals. It is one key reversal reinforcing a preceding key reversal — both in the same direction (see accompanying illustration). For this to occur, certain criteria must be met while others should be met.

First – a market must be entering new high or low ground on a near-term basis.

Second – in the case of a developing daily Double Key Reversal lower, it is very helpful if the market is testing weekly or monthly resistance (specific calculations can be found in Eric Hadik’s Tech Tip Reference Library ). In the case of a developing daily Double Key Reversal higher, the market should be testing weekly or monthly support.

Third – the initial day’s action should end with a close in the lower 25% of the daily range (in the case of a developing Double Key Reversal lower) or in the upper 25% of the daily range (in the case of a developing Double Key Reversal higher).

Next – the second day’s action is usually subdued with a narrow range, spiking slightly above the high and closing below the close of the first day in a developing Double Key Reversal lower. The inverse is expected in a developing Double Key Reversal higher.

Finally – the market will open the third (trigger) day and rally to new highs before reversing and closing below the second (and consequently the first) day’s close. That applies to a daily Double Key Reversal lower while the inverse would apply to a daily Double Key Reversal higher.

To quickly review… a Double Key Reversal is a new high and lower close followed by another new high and another lower close (or vice-versa in a down-trend that is reversing up) – all within a 3-tick window. It is most effective when the 2nd reversal day is also an outside day. The Silver market in January provided a classic example of this pattern at a decisive bottom in the market. That subsequently ushered in a $0.70 rally in the ensuing 6 weeks. (See accompanying chart).

Additional details & diagrams can be found in Eric Hadik’s Tech Tip Reference Library

There are several price patterns to which I pay special attention when they arise. Some of them, like the 2 Close Reversal, are pretty common and provide useful guidance at any point in time. Others appear with far less frequency but are extremely effective when they do.

A patient trader, or one who is only looking to trade a few times a year, might choose to simply wait for this type of pattern for trade generation. This is particularly true since this indicator is more prevalent at intermediate turning points. However, as with any indicator, a large enough sampling of trades has to be taken before the true value of any indicator can be accurately assessed.

With that said, let’s move on to the discussion of the 2-Step Reversal. The 2-Step Reversal is similar to a Turn-Key Reversal in that it involves a key reversal up followed by a reversal down followed by another key reversal higher.

The main distinction is that the intervening reversal down (or up in a topping 2-Step Reversal or Turn-Key Reversal) is NOT a key reversal in the 2-Step Reversal, while it IS a key reversal in a Turn-Key Reversal (see 4th bar from the left in each diagram above).

Another distinction involves the initial key reversal higher (center – or 3rd – bar in both diagrams). In a Turn-Key Reversal, the initial reversal is a key reversal, but often NOT a 2 Close Reversal. In a 2-Step Reversal, the initial reversal IS a 2 Close Reversal as is the second reversal as well (5th bar from the left in each diagram). This is why the 4th bar is not a key reversal, or any form of a valid reversal, but merely a ‘pullback’ from the initial reversal’s close.

In many cases, the support for the second low-and- reversal point (5th bar) is what was 2nd Close Support during the 4th bar’s decline. In other words, if the intervening decline had been a key reversal lower, this point (the close of the 2nd bar, preceding the initial reversal higher) would have been the 2nd Close to confirm a 2 Close Reversal sell signal. (See Eric Hadik’s Tech Tip Reference Library for additional details, filters and diagrams.)

Consistent with the rules for a 2 Close Reversal, this close is viewed as support on the 4th day even before a key reversal has emerged. The difference is that it is carried over to the next day as support in the case of a 2-Step Reversal.

This pattern is consistent with Elliott Wave principles, since it is in effect a 1st wave advance, 2nd wave decline and start of a 3rd wave advance. As a result, the market often accelerates higher immediately after the completion of this signal.

Due to the double reinforcement of this pattern, it is stronger than many other reversal patterns and triggers a 3 – 5 period (day, week, month) signal as opposed to simply a 1 – 3 period signal.

Learn more about the 2-Close Reversal in Eric Hadik’s Tech Tip Reference Library.