Adopting the Top Down Analysis (TDA) was one of the best things I have learned in my early trading career. Before that, I use to get stuck in the lower time frames (TF) like the 5-15 minutes, kept losing trades and blowing accounts. I am sure that if you have been trading for a while, you know how frustrating that can be. As traders, we always look to perfect our trading methods and strategies; we try to find what was wrong and fix it. My main issue was that I was looking at the wrong things to fix, and not finding the main reason made me keep jumping from one strategy to another. Until one day, I stumbled over a trading book that mentioned the significance of the higher time frame — also the importance of using the Top Down Analysis. In this article, I will show you how to approach the market correctly by using the TDA.
How to make a Top Down Analysis the right way?
The way I do my TDA is to start with a clean chart with no indicators at all. Doing so will filter out the possible conflicting signals from the indicators on the chart, I only want to read the structure on the chart, for that, I only need to see the candles and nothing else is required for now. It’s done every weekend. The monthly and weekly charts will give you a good overview of the big picture and the overall trend. The Daily chart will show you where is the price in the overall trend. Correction? Impulse? Sideways? It is also an excellent TF to draw support and resistance levels. 1-4H TF is a reasonable TF frame to see what is going on inside the daily chart. In these TF’s, you plan your Trade Entries, and Trade Exits levels.
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