Top-Down Analysis

AAA

DEFINITION of 'Top-Down Analysis'

A method of analysis that involves looking at the "big picture" first, and then analyzing the details of smaller components. By first analyzing the overall picture, such as a macroeconomic trend, an investor can start narrowing potential companies to analyze. A trader that uses technical analysis may use top-down analysis as part of their trading system.

INVESTOPEDIA EXPLAINS 'Top-Down Analysis'

A day trader may first analyze daily or weekly charts to determine the asset's longer term trend, and strong support and resistance levels; and then move to a smaller time frame of charts, to determine a good entry point. For example, if an asset is trending upwards on the daily chart, and there is good bullish momentum on the hourly chart, a trader using top-down analysis could then move to a 15 minute chart and find a good entry point for a long position.

RELATED TERMS
  1. Chartist

    An individual who uses charts or graphs of a security's historical ...
  2. Top-Down Investing

    An investment approach that involves looking at the "big picture" ...
  3. Resistance (Resistance Level)

    A chart point or range that caps an increase in the level of ...
  4. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  5. Trade

    A basic economic concept that involves multiple parties participating ...
  6. Quantitative Analysis

    A business or financial analysis technique that seeks to understand ...
RELATED FAQS
  1. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  2. What's the difference between "top-down" and "bottom-up" investing?

    Before we look at the differences between top-down and bottom-up investing, we should make it clear that both of these approaches ... Read Full Answer >>
  3. How does a swing trader use the stochastic oscillator?

    The stochastic oscillator is a momentum technical indicator used to indicate points of possible price reversals. Swing traders ... Read Full Answer >>
  4. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  5. How can I spot trading opportunities looking at year-to-date (YTD) performance?

    Trading opportunities on the long side can be spotted by looking at stocks with the worst year-to-date (YTD) performance, ... Read Full Answer >>
  6. How does Net Operating Profit After Tax give a clearer view of the operating efficiency ...

    Net operating profit after tax (NOPAT) gives a clearer view of the operating efficiency of a company. While NOPAT is a measure ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    A Top-Down Approach To Investing

    Use a global view to determine which stocks belong in your portfolio.
  2. Forex Education

    Forex: Finding Your Trading Style

    Determine your own trading style, and the versatile currency market will accommodate it.
  3. Mutual Funds & ETFs

    Top-Down Analysis: Finding The Right Stocks And Sectors

    The top-down investment strategy depends on economy and market strength. Find out what you should know before jumping in.
  4. Retirement

    Where Top Down Meets Bottoms Up

    Find the investing "sweet spot" by combining these two styles.
  5. Chart Advisor

    Watch These Stocks For Breakouts Right Now

    Breakouts are imminent in these four stocks, leading to potential buying, selling or short selling opportunities.
  6. Personal Finance

    Financial Tips For People Who Hate Finance

    For people who hate financial planning, there's usually one big problem – which you can fix. Do it now.
  7. Investing

    Seven Investing Books For Your Summer Reading List

    It’s almost 4th of July, the season of summer reading. Picking up a book during your holiday can be a great opportunity to learn more investing.
  8. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  9. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  10. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!