Speed lines are used to assess the strength of an underlying trend. Developed by Edson Gould, they are a series of trend lines that divide change in the a price into three equal parts. They are a combination of percentage Retracements and trend lines that change with the trend. Speed Resistance displays two trend lines, one at 33.3% slope and the other at 66.6% slope..
Speed Resistance trend lines are drawn using typical tops or bottoms.
As the prices pass these two lines, traders make predictions about future price movements based upon whether there appears to be price resistance or support at these intersection points. If the prices hold at the speed resistance lines, support is indicated there. If they quickly move through the resistance line, then no support is suggested.
The purpose of speed resistance lines (SRL) is to indicate in advance where stocks and market averages are liable to find support and encounter resistance. They are useful for the short, intermediate and long term.
The market will tend to find support at rising 2/3 SRL, and this is generally a good spot to buy. However, if the rising 2/3 SRL is violated decisively, a rapid decline to the rising SRL can be anticipated. The 1/3 SRL usually acts as a long-term support line. If the rising 1/3 SRL is violated decisively, look for a decline back to previous lows.
The opposite is true in declining markets. Rallies will frequently halt at the declining 2/3 SRL. If that line is penetrated, you can expect a rally to the declining 1/3 SRL. Upon penetration of that line, a move to the old high or higher can be anticipated.