Speed resistance Lines
Speed resistance lines divide the trend into three sectors, or thirds. This is similar to Fibonacci retracements, which are based on 38.2% and 61.8%. In addition, Dow Theory suggests that securities retrace 1/3 to 2/3 of an advance or decline with a corrective move. Applying speed resistance lines after an advance or decline provides chartists an immediate idea of where to expect support or resistance. These Speedlines can be maintained as is or repositioned as an advance or decline extends with new highs or lows. Repositioning after a higher high or lower low will widen the speed resistance Lines. This means potential support or resistance levels will be further away. As with all indicators and line studies, speed resistance lines should be used in conjunction with other aspects of technical analysis. They are not designed as stand-alone indicators.
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Developed by Edson Gould, speed resistance Lines, sometimes referred to as Speedlines, 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 on 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.
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Speed resistance lines work the same as ordinary trend lines. They can be used to estimate support or resistance levels and to define the trend. 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 do. 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 turn into support on a pullback.
Repositioning and best signals
Speed resistance lines can be repositioned as a security extends its trend with lower lows or lower highs. In the Electronic Arts example below, the first Speedlines were based on the June high and September low. ERTS forged new lows in December and again in February as the downtrend extended. The first set of Speedlines are blue, while the second set are pink.
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Speedlines for the December low were skipped to keep the chart relatively clean. Notice how the Speedlines widened as the stock forged lower lows. This is because the length of the move from high to low grew larger - as did the 1/3 and 2/3 retracements. The repositioned speed resistance lines (pink) were based on the June high and February low. Even though the stock broke above its January high, the upper Speedline extension marked resistance in April.
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