Technical Analysis from A to Z

by Steven B. Achelis

SPEED RESISTANCE LINES

Overview

Speed Resistance Lines ("SRL"), sometimes called 1/3-2/3 lines, are a series of trendlines that divide a price move into three equal sections. They are similar in construction and interpretation to Fibonacci Fan Lines.

Interpretation

Speed Resistance Lines display three trendlines. The slope of each line defines a different rate at which pricing expectations are changing.

Prices should find support above the 2/3 line. When prices do fall below the 2/3 line, they should quickly drop to the 1/3 line where they should then again find support.

Example

The following charts show McDonald's price and Speed Resistance Lines.

The initial trendline was drawn from the low point labeled "A" to the high point labeled "B." You can see that prices found support each time they fell to the 2/3 line. When prices finally penetrated the 2/3 line (at point "C") they quickly fell to the 1/3 line where they again found support.

Calculation

To draw Speed Resistance Lines:

1. Draw a line from a major low to a major high.

2. Draw a vertical line on the day the major high occurred. Divide this vertical line into thirds.

3. Draw lines from the major low so they intersect the vertical line at the 1/3 and 2/3 levels.

This online edition of Technical Analysis from A to Z is reproduced here with permission from the author and publisher.