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). It also 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.
The Double-Key -- as its name describes -- is a double key reversal. 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 daily Double Key -- 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).
Third... the initial day’s action should end with a close in the upper 25% of the daily range.
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.
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.
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)... 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 is a classic example of this pattern at a bottom in the market -- which ushered in a $.70 rally in the ensuing 6 weeks. (See accompanying chart).