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Is this how 'top down' trading works?
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Is this how 'top down' trading works?

  #1 (permalink)
Trading Apprentice
London/England
 
Futures Experience: Beginner
Platform: NinjaTrader
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Posts: 4 since Nov 2012
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Is this how 'top down' trading works?

Hey guys

so i am a complete newbie and I'm a little confused about the 'correct' method or most common effective method of picking stocks according to a 'top down' approach. From what I understand, one begins by analysing the overall market trend, then moves down to sectors, then to industry groups and then to individual stocks. So the idea is to find a similar price pattern to the price pattern of the overall market because if a stock's price pattern is similar to that of the market, that means it is leading the market.

That's what I think 'top down' analysis is but please correct me if I'm wrong because I don't think I have understood it 100%.

Also how does one get charts of the market, sectors and industry groups into something like ninjatrader. So far I've only managed to open up charts of individual stocks but how would i get a chart of the price pattern of lets say the FTSE 100 or a specific sector/industry group.

Thanks in advance for any replies I hope my question makes sense.

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  #3 (permalink)
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Think of it as analyzing something Macro-Micro...or big picture to little picture

As far as getting the charts...try contacting your data feed provider and finding out what their symbols are for whatever market/instrument you're looking for

Before you attempt to beat the odds, make sure you can survive the odds beating you.
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puravida's Avatar
 
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question is a bit older, but regarding charts from industries, sectors and so on you can use several EFT's to get a top down picture.

For example if you are interested in the german stock market, you may start by analysing MSCI World Index, go lower to Europe STOXX, then germany indicies and then certain sectors. For the sectors you may use ETF's like "iShares EURO STOXX Banks (DE) (EXX1)" which can be tracked with NinjaTrader, from this point on you have the strongest sectors/industries and can start by picking the strongest stocks.

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Market Wizard
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The OP describes a valid form of top-down analysis in my opinion.

Remember though - at the top there's 1 market and at the bottom there's 10,000 stocks, so you do need to be narrowing things down as you drill down.

Another form of top down analysis is to look at varying timeframes on a single instrument. I actually think there is less validity in this approach, particularly those who say you need to go through 5 or 6 different timeframes. 2 timeframes for a single instrument should be sufficient for a day trader in my opinion. The big picture and then something that shows you how the instrument is moving intra-day.

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  #6 (permalink)
Trading Apprentice
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Thanks for the replies guys. I've been really busy at the moment so haven't had much time to take a look yet.
I'll check out the ETFs and see how I can use them. In regards to the timeframes, I've been looking at weekly charts and then doing entries and exits on daily charts. I believe that to be sufficient although I am no expert.


Last edited by RKHG888; December 8th, 2012 at 10:14 AM.
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