Top-Down Analysis
- Ronald van Rensburg
- Sep 7, 2022
- 1 min read
There are many ways to approach an idea and one of these is the top-down analysis approach. This is first looking at the bigger picture and then based on what is happening in the bigger scheme of things you can make your decision as to which instruments you want to trade on. Where you take a broad look at things and analysis what the affects would be on the companies down the line.
Generally top-down analysis is more focused on the macro economic factors and how they influence the markets. This could be in the form of inflation or monetary policies, and how these would affect the companies or commodities that relate to these events. Investors would also take into account current trends or seasonal influences as well as the current cycles that economies are in.
As an example taking into account the current economic cycle of the global economy, with looming recessions, top-down analysis would hint towards previously looking at trading ideas in Consumer Defensive industries such as pharmaceuticals and food and beverage as people still spend on necessities. Then through further analysis you would decide on which instrument to trade.
A lot of investors generate trading ideas with the top-down analysis and is generally easier to use in my opinion because all you need to do is switch on the news and you will receive information markets and economies. See if you can come up with some ideas just with the general global news.
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