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. Top-Down Investing

    An investment approach that involves looking at the "big picture" ...
  2. Trend

    The general direction of a market or of the price of an asset. ...
  3. Resistance (Resistance Level)

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

    A basic economic concept that involves multiple parties participating ...
  5. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  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. What are the main differences between a mixed economic system and pure capitalism?

    A mixed economy is one in which the government does not own all of the means of production, but government interests may ... Read Full Answer >>
  4. How does fundamental analysis differ from technical analysis?

    Technical analysis and fundamental analysis are two distinct approaches to equity investment. Fundamental analysis is typically ... Read Full Answer >>
  5. Did the repeal of the Glass-Steagall Act contribute to the 2008 financial crisis?

    The repeal of the Glass-Steagall Act was a minor contributor to the financial crisis, if it contributed to the crisis at ... Read Full Answer >>
  6. Is it better to use fundamental analysis, technical analysis or quantitative analysis ...

    The most common methods that investors use to analyze the benefits and risks associated with long-term investment in the ... 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 For These Chart Pattern Breakouts Right Now

    These stocks are near chart pattern breakout points, indicating potential trend reversals ahead.
  6. Investing

    Should You Average Down When Trading Stocks?

    Averaging down on a stock can allow you to avoid having to admit you are wrong. On top of this and given enough time, the strategy can result in a profit.
  7. Trading Strategies

    Is Liquidity Improved By High Frequency Trading (HFT)?

    Is the market liquidity provided by high frequency trading a reality or an illusion?
  8. Charts & Patterns

    Are These the Top 3 Value Stocks of 2015?

    A look at three value plays for the long-term investor.
  9. Economics

    Explaining the Value Chain

    A model of how businesses receive raw materials as input, add value to the raw materials, and sell finished products to customers.
  10. Fundamental Analysis

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.

You May Also Like

Hot Definitions
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  2. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  3. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  4. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  5. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
Trading Center