Speed Resistance Lines
posted under
Philosophy of Technical Analysis
by ceecabolos
Speaking of thirds, let's touch on another technique that combines the trendline with percentage retracements—speedlines. This technique, developed by Edson Gould, is actually an adaptation
of the idea of dividing the trend into thirds. The main difference from the percentage retracement concept is that the speed resistance lines (or speedlines) measure the rate of ascent or descent of a trend (in other words, its speed).To construct a bullish speedline, find the highest point in the current uptrend. (See Figure 4.21a.) From that high point on the chart, a vertical line is drawn toward the bottom of the chart to where the trend began. That vertical line is then divided into thirds. A trendline is then drawn from the beginning of the trend through the two points marked off on the vertical line, representing the one-third and two-thirds points. In a downtrend, just reverse the process. Measure the vertical distance from the low point in the downtrend to the beginning of the trend, and draw two lines from the beginning of the trend through the one-third and two-thirds points on the vertical line
Each time a new high is set in an uptrend or a new low in a downtrend, a new set of lines must be drawn (because there is now a new high or low point). Because the speedlines are drawn from the beginning of the trend to the one-third and two-thirds points, those trendlines may sometimes move through some of the price action. This is one case where trend-lines are not drawn under lows or over highs, but actually through the price action.
If an uptrend is in the process of correcting itself, the downside correction will usually stop at the higher speedline (the 2/3 speedline). If not, prices will drop to the lower speedline (the 1/3 speedline). If the lower line is also broken, prices will probably continue all the way to the beginning of the prior trend. In a downtrend, the breaking of the lower line indicates a probable rally to the higher line. If that is broken, a rally to the top of the prior trend would be indicated.
As with all trendlines, speedlines reverse roles once they are broken. Therefore, during the correction of an uptrend, if the upper line (2/3 line) is broken and prices fall to the 1/3 line and rally from there, that upper line becomes a resistance barrier. Only when that upper line is broken would a signal be given that the old highs will probably be challenged. The same principle holds true in downtrends.
of the idea of dividing the trend into thirds. The main difference from the percentage retracement concept is that the speed resistance lines (or speedlines) measure the rate of ascent or descent of a trend (in other words, its speed).To construct a bullish speedline, find the highest point in the current uptrend. (See Figure 4.21a.) From that high point on the chart, a vertical line is drawn toward the bottom of the chart to where the trend began. That vertical line is then divided into thirds. A trendline is then drawn from the beginning of the trend through the two points marked off on the vertical line, representing the one-third and two-thirds points. In a downtrend, just reverse the process. Measure the vertical distance from the low point in the downtrend to the beginning of the trend, and draw two lines from the beginning of the trend through the one-third and two-thirds points on the vertical line
Each time a new high is set in an uptrend or a new low in a downtrend, a new set of lines must be drawn (because there is now a new high or low point). Because the speedlines are drawn from the beginning of the trend to the one-third and two-thirds points, those trendlines may sometimes move through some of the price action. This is one case where trend-lines are not drawn under lows or over highs, but actually through the price action.
If an uptrend is in the process of correcting itself, the downside correction will usually stop at the higher speedline (the 2/3 speedline). If not, prices will drop to the lower speedline (the 1/3 speedline). If the lower line is also broken, prices will probably continue all the way to the beginning of the prior trend. In a downtrend, the breaking of the lower line indicates a probable rally to the higher line. If that is broken, a rally to the top of the prior trend would be indicated.
As with all trendlines, speedlines reverse roles once they are broken. Therefore, during the correction of an uptrend, if the upper line (2/3 line) is broken and prices fall to the 1/3 line and rally from there, that upper line becomes a resistance barrier. Only when that upper line is broken would a signal be given that the old highs will probably be challenged. The same principle holds true in downtrends.
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