What Are Tirone Levels?
Tirone levels are a series of three sequentially higher horizontal lines used by chartists to identify possible areas of support and resistance for the price of an asset.
They are were developed by technical analyst and trader, John Tirone.
- Tirone levels are a technical indicator consisting of three horizontal lines that help identify support and resistance levels in a security's price.
- Tirone Levels are most often drawn with a midpoint line and then lines representing 1/3rd and 2/3rds of the distance from the high to the low point.
- The interpretation of Tirone Levels is similar to quadrant lines and Fibonacci retracement.
Understanding Tirone Levels
The use of Tirone levels is similar to that of Fibonacci retracement, and both are interpreted in the same way. They both determine the position of the lines by using a percentage of the difference between a high and a low. Both Tirone levels and Fibonacci retracement use 50% as one of the possible support/resistance levels.
The position of the center line is plotted by calculating the difference between the highest high and the lowest low for the asset price over a period of time and dividing it by 2. The top and bottom lines are drawn 1/3rd and 2/3rds of the difference, respectively, between the same high and low that are used to calculate the center line.
Fibonacci retracement levels, for comparison, are horizontal lines that indicate where support and resistance are likely to occur that are based on the Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a Fibonacci ratio, 50% is also used.
These levels are based on the Golden Ratio, a sequence of numbers that begins with zero and one and then adds the prior two numbers to get a number string like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987... with the string continuing indefinitely.
Tirone Levels and Support & Resistance Levels
The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis. Part of analyzing chart patterns, these terms are used by traders to refer to price levels on charts that tend to act as barriers, preventing the price of an asset from getting pushed in a certain direction.
- A support level's price tends to find support as it falls. This means that a price level is more likely to "bounce" off this level rather than break through it. However, once the price crossed this level, by an amount adjusted for noise, it is likely to continue falling until meeting another support level.
- A resistance level is the opposite of a support level. It's where the price tends to find resistance as it climbs higher. Again, this indicates that the price is more likely to "bounce" off this level rather than break through it. Except, once the price has breached this level, adjusting for noise, it is likely to continue rising until meeting another resistance level presents itself.