Top-down analysis. Understanding different timeframes
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  1. #1
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    Top-down analysis. Understanding different timeframes

    Hi there!

    In this tread I’d like to share my ideas on top-down analysis with community. «Top-down» analysis is type of analysis that you do when you watch price action from big picture perspective. Today I’ve made a webinar on this topic and now I’ve decided to make a supporting article.
    «Top-down analysis» is not a «3-screen» system. Though it may be reasonable to analyze price chart on H1, D1 and W1 simultaneously but that’s not what I do. I use only M30 and D1. By «timeframes» I basically understand not charts but market participants with different perspective. First let’s make brief description on each timeframe.

    Notice – I’m not talking about retail traders with 100 dollars account, they can not move the market even on a distance of 1 pip, even if they will bring 10000 positions simultaneously in one direction. I will be rather talking about interbank dealers, some of them will also act like daytraders – most of day timeframe traders will have no position until market close.

    Domination

    Core concept is that inside one period of time market is driven by certain market forces – either daytraders, short-term traders or institutional demand/supply. If market is dominated by daytraders, opportunity will be pretty limited. However, if market will be driven by institutional players, trend will be able to continue (market is supported by higher timeframe)

    Now let’s try to make classification of major market participants.

    Daytraders

    Professional day timeframe trader are usually market makers – in other words they tend to work near levels that accumulate enough volumes and avoid trading outside the range of the day. Reference points for them: previous day’s high and previous day’s low.
    If you see that market goes exactly to previous day’s low and high, probably market is dominated by this group. It means that price action will have limited ability to go further in this case. Unless there are any clues for other timeframe trader (OTF), opportunity will remain to be limited.

    daytimeframe.png


    Other-timeframe-traders

    Auction market theory has excellent word describing market participant that has perspective at least more than 1 day – «other timeframe trader». We don’t care whether market is driven by short-term swing trader or position trader from hedge fund – we assume that they have enough capital to move price and have some different perspective – what seems expensive for daytrader, maybe cheap for them. They even may not have charts – they make decision using other principles and criterias.

    Stop running

    Stop running process can be indication of OTF presence. Forex market has huge turnover and liquidity but positions of market participants are also huge – that’s why they often don’t have enough liquidity near certain price level to accumulate position. Remember – they don’t have brokers and buy/sell button. They have to deal with real interbank liquidity and accumulate position piece-by-piece.
    If you see stop running in whatever direction, it may be indication of large OTF accumulating long/short.

    Reference points

    If you see that price is breaking out consistently weekly or monthly extremes (as well as 2-day or 3-day extremes), it can be indication that this instrument is «in play». We don’t know final destination though – it can be either short or long accumulation, we should remain flexible about destination.
    That’s example of build up on EURUSD.

    1. Price is breaking out previous days’ high (April 9) (and possible executes stops of short sellers)
    2. Price is breaking out high from March 24 (2 weeks high)
    3. Price is breaking out previous week’ high.


    This instrument is «in play». But what to expect? We can expect rapid movement in whatever direction. I personally was trading to the long side on violation of rotational center. But I failed to reverse this position though I had to – final destination was not defined. Nice move to the downside followed.

    otfpresence.png
    tradelocation.png

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    Forex news are very important for the forex traders, as we all knows forex market is depend on the fundamental news all professional traders are wait such kind of news to open their orders, as i use fundamental news release strategy so i put pending order before releasing the news. Forex news break all support and resistance level and this shows teh berish and bullish treand line.

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    about daytraders, they avoid to trading outside the range of the day, then i try to pay attention about support resistance, but the problem come up to me, when i make an order , the trend still continue the position and it gave me floating minus, and need longer time before i can solve the problem, can you please give me some tips to avoid it ?

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    This is a trading way that is most scarce in the trading of the forex, I have seen traders that looks at the pattern and emergence in all the time frame to correlates before he takes his decision, this may look somehow, but I still believe that it will help the trader very well better than using just one tie frame.

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    Thanks a lot value trader sir your topics are always very informative I also like to focus only on good support and resistance points for trading because technical analysis can give us consistent profit in forex I am making very good consistent profit with technical analysis method since a long time now

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    This is very effective topics to me through which I came to know many new aspects which I did not know earlier. I like this forum for this specialty where I am getting many new ideas/suggestion to learn better forex trading. I am waiting for such types of learning tools in this forum.

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    this is a good information, I've been some trade for daily basis but sometime I confuse why the pattern make a different result that based on yesterday open and close with daily range. thanks for sharing this information that very useful for me to make more confident with daily trade.

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    Quote Originally Posted by Jamuna View Post
    This is very effective topics to me through which I came to know many new aspects which I did not know earlier. I like this forum for this specialty where I am getting many new ideas/suggestion to learn better forex trading. I am waiting for such types of learning tools in this forum.
    I agree with what you are saying that just to analyze the rise and fall only in this trade sometimes it really is not easy for us to do so sometimes in this trade if we want to learn in this trade analysis to understand the ups and downs we have to use the tools such analysis infikator,, candlestick,, pinbar and economic analysis, and the average is not going to be easy to understand traders in their trading

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    I think the next, guys. The top down analisis is usefull for the buttom or top point searching. I preffer the first look on the chart time frame chart like M1 or M5 chart. When I see in that charts approching to the some support or resistance then I will look the logn term chart like M30 and H1. If I see on that charts the approching to one of the resistance or support of this long term chart then I will suppose that the price is approching to the very strong resistance or support. Then I will considerate the entry point.

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  10. #10
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    But in the picture represented though the potential seemed for long trade breakout, the reverse happened and thus in such scenarios the traders will have to hold too much of floating loss or being trapped into wrong trade and the resultant may be huge loss. Looking at the long term perspective is always very much beneficial for the traders but once also needs to consider their knowledge and market exposure for better trading in the forex market.

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