TheTop Down Approach To Taking A Trade

TheTop Down Approach To Taking A Trade

Trading is not gambling. It is a game of probabilities. The professional traders have tried and tested strategy and they take their trades when the trade set up is formed.

The professional traders do not guess their trades. They do a top-down approach to take a trade and then when all the criteria are met, they then place a trigger.

How to trade in the market

The trading using technical analysis is popular and those who trade using this method is known as technical analysts. The technical analysts analyze the market using charts and candlestick patterns and look for high probability trading opportunities.

The technical analysts look at multiple time frames to analyze their trade. They take a top-down approach here. The analyst first sees a higher time frame chart of the stock. This lets him look for quality demand and supply levels. He also analyzes how the stock is moving in the higher time frame chart.

Suppose the candlestick on the higher time frame chart is at a demand level. He then waits for the price to start turning from the demand level. He plans to be a buyer in the stock.

The next step is to watch the lower time frame chart closely. Since the candle is at the demand level on the higher time frame chart, in all probability it will start to move up from this level. This may not be a trend change in the higher time frame chart but could just be a correction. The trader plans to make use of this correction.

When the candle starts moving higher in the higher time frame chart it starts to make higher highs and higher lows in the lower time frame chart. This is where the trader will be looking for opportunities to go long on the stock.

The trader should however wait for a short-term trend to develop on the lower time frame chart. Also if the price has reached the higher time frame supply zone then he should refrain from investing in this stock.

Once the trader sees a bullish trend being formed in the lower time frame chart, he should look for demand levels on the lower timeframe chart and trade when price retraces back to that level.

The smaller time frame chart

The trader could adjust the level on the smallest timeframe chart. The stop loss should be placed below the demand level.

The similar set up can be placed to short the market. Here the trader needs to look for quality supply levels.