| Eric
Hadik'sTech Tip Reference Library
"After
having traded bonds and currencies for some of the larger
investment bank on Wall Street since 1983... I know
I could not replicate the degree of sophistication you
bring to your technical analysis... Your Tech Tips have
taught me an amazing amount... I do my own research,
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(Name
withheld by request)--Carmel CA
Eric S. Hadik's Tech Tips Reference Library is a compilation of all the technical indicators Eric has revealed to his readers over the past 20+ years. Eric does not claim to have reinvented the wheel with these indicators...but to simply make it work better. His Tech Tips are a combination of filters added to other indicators, both well-known and obscure, as well as some of his own innovations.
Many over-used and highly diluted indicators
(i.e. key reversal, moving average, etc.) are revitalized
by the addition of a simple filter or two. The
result is a group of unique, effective and consistent
indicators that have been featured in various trading
publications and acclaimed by top money managers and
traders.
"You
have enhanced the quality of my technical analysis one
hundred fold through your Tech Tips. Your openness,
generosity, and love of the markets come through clearly
in your writing. Your help is immensely appreciated.."
(Professional
Trader)
A
Trading Perspective
from Eric S. Hadik…
The
key to successful trading lies not in specific indicators,
but rather in when, how, and where they are used. Indicators
are nothing more than tools... and no single tool will
accomplish every task you encounter.
You
have probably encountered many approaches to trading
and a plethora of indicators. Most innovations are nothing
more than a twist on an old indicator. Many old indicators
are also nothing new -- just a different way to describe
a ubiquitous principle. This is why a master like W.D.
Gann frequently quoted Solomon from almost 3,000 years
prior: "There is nothing new under the sun."
True
discovery usually lies in re-discovery. Many
revolutionary discoveries are made by simply ‘tweek’-ing
an old invention, or approaching a problem from a different
angle. There is still a great deal to be learned from
some of the oldest and best-known technical price patterns...
like the key-reversal.
Key
Point - The basic key reversal pattern.
Some
readers may be convinced that a key-reversal
is an over-rated and unreliable price pattern. In its
original state, and by itself, this may be true. More
likely, however, is that traders expect too much from
this signal, have no means of filtering it, and do not
understand when its application is complete.
This is what is explained in the following 3 examples of my Tech Tips. This is just one of nearly two dozen examples of how useless indicators have received a breath of new life into them or how over 25 years of trading and research spurred the development of new tools. But back to the example of key reversals…
A
key-reversal is any price tick which contains
a new high (above the previous tick’s high) and
lower close... or a new low and higher close (see illustration)
[NOTE: For the purpose of the remaining discussion,
a down-ward daily reversal from a prevailing uptrend
-- a new daily high and lower close -- will be assumed
in all examples. The principles discussed apply to all
reversals, and all time frames, whether up or down.]
A
key reversal is not intended to signal a major
turning point. It only indicates that short-term momentum
has changed. If it is not quickly confirmed, a key reversal
becomes powerless!A key-reversal does reveal
some important considerations. The fact that the prevailing
trend initially followed through from the previous period
(causing the new high or low), but then was able to
reverse and close in the opposite direction -- says
something significant about the prevailing sentiment.
The
question is how long will this new sentiment dominate?
This question begins to address the biggest problem
that most traders have with indicators... overrating
their effectiveness and applicability. The secret to
consistent profits lies in knowing when
to use (or when not to use) an indicator -- and forhow
long
Based on 25+ years of experience and observation, it has become obvious that most reversal patterns are only applicable for the next 1-3 periods.
If
the pattern in question is a daily key reversal,
it should have an impact for the ensuing 1-3 days...
and no more. If the pattern is a weekly key reversal,
it is applicable for the following 1-3 weeks...
and no more.
This
does not mean that the new trend (spurred by the key
reversal) will terminate after three periods. Nor does
it mean that a key reversal can not occur at a major
top or bottom. What it does mean is that a secondary
indicator must confirm by the end of that period --
in order to prolong the current move. If this occurs,
then the new signal will spur an additional 1-3 periods
of movement, or more.
Trading
any given trend is like a road trip which begins in
familiar territory with frequent stops and starts. As
the trip (trend) progresses, the goal is to get to the
freeway (main trend) and experience some ‘clear-sailing’.
Ultimately, the freeway/main trend is exited and the
stops and starts begin again until the final destiny
(major top or bottom) is reached.
In
the same way that a driver does not assume that every
turn in city traffic is going to lead to clear sailing,
a trader should not assume that every reversal is the
final high or low. Only two (out of literally dozens,
or even hundreds) can be THE top and THE bottom.
What
does this mean? It should demonstrate how and where
reversal patterns fit into an overall trading strategy...
and into an overall trend. They are not indicators of
the overall trend, whether or not it is a new or existing
trend. They are indicative of very small trends within
a larger period of consolidation. Eventually, one of
these will place you on the on-ramp to a break-away
move... but only one!
So,
do not trade a key reversal (in any of the following
forms) as if it is the main trend... and do not drive
on city streets as if they are the freeway. Harsh monetary
penalties are reserved for both of these infractions.
With that groundwork laid, it is time to discuss the
three most effective types of key reversals. They are:
#1
-- HDKR ™...
Hadik’s Double-Key
Reversal ™
#2
-- HTKR
™ ... Hadik’s
Turn-Key Reversal™
#3
-- H2CR
™ ... Hadik’s
2-Close Reversal ™
[For
the sake of brevity, they will be referred to as the
Double-Key™,
Turn-Key™
and 2-Close Reversals™.]
ITTC
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