Speed Resistance Lines

Speed Resistance, or Speedlines, are a combination of percentage retracements and trend lines that change with the trend.

Overview

Speedlines, developed by Edson Gould, are a variation on the idea of dividing the trend into thirds. The main difference from the percentage retracement is that speedlines measure the rate of ascent or descent - or "speed" - of a trend as it develops.

In an uptrend the speedlines are drawn by:

Drawing a line vertically from the base to the highest peak (shown as a blue line)
dividing this vertical line into thirds
drawing speedlines (shown as red lines) from the beginning of the trend through the 1/3 and 2/3 points
The upper line is often referred to as the 2/3 speed line and the lower line as the 1/3 speedline

As the trend develops and new peaks (or valleys in the case of a downtrend) are formed the vertical line is redrawn and new speedlines are added.

Signals

Uptrend: If a correction is underway in an uptrend, the price will usually stop at the upper speedline. If the price penetrates the upper speedline, however, this is often a good indication of a trend reversal and can be used a sell signal.

Downtrend: In a downtrend, a penetration through the lower speedline signals a likely rally to the upper line; and if the upper line is broken this usually indicates a continued rally.

Additional Information

Also see trendlines and Fibonacci arcs & retracements.