What Are Speed Resistance Lines?
Speed resistance lines are a tool in the technical analysis used for determining potential areas of support and resistance in the market. Also known as speed lines, these are trendlines based on 1/3 and 2/3 retracements.
- Speed resistance lines, or speed lines, are a series of three trendlines used to indicate support and resistance levels.
- The first speed line connects a recent high and low point in the asset's price.
- The second and third-speed lines are drawn at 1/3 and 2/3 intervals, respectively.
Understanding Speed Resistance Lines
Speed resistance lines are comprised of three consecutive trendlines. Where the first is drawn from an asset's most recent low to its 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.
Speed resistance lines, however, are not drawn exactly like typical trendlines that use price peaks and troughs. Instead, the first speed line utilizes trend intervals that can sometimes intersect prices at points other than peak or trough. The second and third speed lines are then placed at the one-thirds and two-thirds intervals to indicate levels of resistance (or support).
Resistance, or a resistance level, is the price point at which the rise in the price of an asset is halted by the emergence of a growing number of sellers who wish to sell at that price.
Resistance levels can be short-lived if new information comes to light that changes the overall market’s attitude toward the asset, or they can be long-lasting. In terms of technical analysis, the simple resistance level can be charted by drawing a line along the highest highs for the time period being considered. Depending on price action, this line can be flat or slanted. There are, however, more advanced ways to identify resistance incorporating bands, trendlines, and moving averages.
Speed resistance lines were invented by market technician Edson Gould. Gould became renowned for his market savvy and technical ability during the 1960s and 1970s.
Reading Speed Resistance Lines
Speed resistance lines operate the same as any other trendline. But because they use both 1/3 and 2/3 intervals, these mark two levels of interest instead of just one. A break below the first line then leaves the analyst to see if the second line will hold. A subsequent break below the second line indicates a possible trend reversal. In an uptrend, the lines represent support, while during a downtrend, these are resistance levels.
Speed resistance lines are interpreted similarly 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 or resistance.