What are Speed Lines?
Speed lines are a technical analysis tool developed by Edson Gould, a technical analyst who became quite well-known for making numerous accurate stock market calls during the 1960s and 1970s.
They sometimes refer to as “speed resistance lines,” however, that moniker is somewhat deceptive since the line’s design represents both support and resistance levels.
Understanding Speed Lines
Speed lines are a fan tool that discloses multiple potential support or resistance trend line levels to the Fibonacci fan or Gann fan.
Each of the three lines that comprise this indicator shows possible support (in an uptrend) or resistance (in a downtrend) heights that may serve as future turning points for a security’s price.
How to Draw Speed Lines?
- Although you can apply a speed lines indicator to a chart, speed lines are also informal to draw yourself.
- The first line in an uptrend draws from the low price point, or start, of the uptrend to the newest high price reached in the trend.
- The second line, known as the 1/3 line, is then drawn from the low price to the price point on behalf of a one-third retracement from the high toward the common.
- The third line, the 2/3 line, remove from the low to the price equal representing a two-thirds retracement from the tall.
- For example, the stock liberal over a while from $10 a share to a high of $50 a share, then speed lines would draw as follows:
- The first line would draw from the $10 low price level to the $50 high.
- The 1/3 line would draw from the $10 low to the $37 level. (The total loan of the stock is $50 – $10 = $40. One-third of $40 is approximately $13. $50 – $13 = $37.)
- The 2/3 line would be attractive from the $10 low to the $24 level. (Two-thirds of $40 is about $26. $50 – $26 = $24.)
- Both the 1/3 and 2/3 lines are fundamentally trendlines that indicate possible support heights in the occasion of a downside corrective retracement during an overall uptrend.
- It was applying speed lines to a downtrend. The first line attractions from the recent high price the downtrend ongoing from to the most recent low of the downtrend.
- The 1/3 line would tempt to signify a one-third upward retracement of the downtrend. And the 2/3 line means a two-thirds retracement of the downtrend.
- Speed lines can redraw if a market brands a new, higher high, or lower low.
Using of Speed Lines
- In an uptrend, when a downside retracement occurs. A trader is looking for a price point to ahead into the market based on confidence.
- The overall uptrend will resume next; some corrective downside price drives may use speed lines to identify potential support levels to consider buying.
- It did not intend to use as a separate technical indicator.
- Instead, they design to identify price levels where traders can use other technical indicators to educate price action – such as candlestick patterns.
- To determine if the market does seem to be finding support and consolidation. Or the price act shows the market is likely to fall further.
- If the price falls below the 1/3 line, the next level to look for support to form is at the 2/3 line if the price finds provision.
- And begins moving upward from the 2/3 line, both the 1/3 speed line. And the first line (tired from the low to the high).
- It may act as resistance heights for the resumed uptrend and potential trend reversal points.
- If the price lasts to fall below the 2/3 line, it interprets as meaning.
- The uptrend is no longer lawful in that the market has transitioned from an uptrend to a downtrend.
- A trader can then concept a new set of it applied to the downtrend.
- In a downtrend, the 1/3 and 2/3 speed lines signify potential resistance levels from which the market may turn spinal to the downside after an upside corrective retracement.
- Although it is not a part of the speed lines calculation.
- Many traders will also draw a fourth possible support/resistance trendline at the 50% retracement equal to an uptrend or downtrend.
- This is because 50% retracements of long-term trends have shown to occur commonly. A 50% retracement line will include a reduction between the 1/3 and 2/3 speed lines.
When Speed Lines are Most Helpful
- Speed lines help traders and analysts determine probable support or resistance heights within an overall tendency.
- They can apply across numerous time frames, such as hourly, daily, or weekly. But they not designed for usage when a security is in a reaching, non-trending market.
- Using different time frames, traders or analysts can smear short-term, medium-term, and long-term trends.
- The most valuable when applying to trading is a long-term, well-defined tendency. And whose trading is not typically characterized by high volatility?
- They generally less valuable when applying to deposits characterized by choppy or highly volatile trading.
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