What is Speed Resistance Lines
Speed resistance lines are a tool in technical analysis that is used for determining potential areas of support and resistance. This tool, consisting of three trend lines, is created by drawing the first trend line from the most recent low to the most recent high when the asset is in an uptrend, and from the most recent high to the most recent low when the asset is in a downtrend. The other two trend lines are drawn with smaller angles in an attempt to predict areas that will act as possible barriers in the event of a retracement.
BREAKING DOWN Speed Resistance Lines
Speed resistance lines are similar in interpretation to the Fibonacci Fan indicator. Many traders will watch for a move below the two-thirds level to signal a continued retracement toward the one-third level. It is important to remember that other technical indicators should be used when the price of the asset is near the trend line to confirm the strength of the predicted support/resistance.
History of Speed Resistance Lines
Developed by Edson Gould, speed resistance lines are trend lines based on 1/3 and 2/3 retracements. Gould was a prominent market technician who became quite famous for his market calls in the 60s and 70s. Gould appeared on Wall Street Week a few times and was often quoted in Barron's. Speed resistance lines are not drawn like traditional trend lines, which are based are peaks and troughs. Instead, the first line extends from the low to the high in an uptrend or from the high to the low in a downtrend. This first speedline sometimes cuts right through prices. Subsequent lines are then placed at 1/3 and 2/3 intervals to estimate potential support or resistance levels. Gould also referred to speed resistance lines as speedlines.
Reading Speed Resistance Lines
Speed resistance lines work just like ordinary trend lines. In an uptrend, Speed Resistance Lines mark two potential support levels to watch. A break below the middle line targets a move towards the upper line. A break below the lower line indicates enough weakness to consider a trend reversal. Once broken, the line extensions can then mark resistance, just as ordinary trend lines. In a downtrend, speed resistance lines mark two potential resistance levels to watch. A break above the middle line shows strength that targets a move to the upper line. A break above the upper line indicates a trend reversal. Once broken, these speedlines can then become support on a pullback.