What is the purpose of speed lines in technical analysis?

The purpose of speed lines in technical analysis focuses on identifying potential levels of support and resistance based on the speed of price movements in an uptrend. Speed lines, often used in conjunction with trend lines, are drawn from significant price points and extend outward to show potential areas where the price may pull back or find support during retracements.

In an uptrend, speed lines help traders visualize how quickly a stock has changed in price, providing insights into potential future actions. The steeper the angle of the speed line, the quicker the price increase has been, indicating that any return to these lines may represent a buying opportunity. These lines act as reference points for traders to determine where the price may be likely to reverse or resume its upward movement.

Understanding this concept is vital for traders using technical analysis as it allows for more informed decision-making in trend-following strategies.