Best Top Down Analysis Strategy - Smart Money & Price Action

Summary

This video tutorial introduces the top-down analysis technique for traders, emphasizing the importance of combining multiple timeframes for a comprehensive market overview. It explains how to identify market direction, key levels, and trading opportunities by leveraging price action and smart money concepts. The tutorial demonstrates practical steps, from weekly to minute charts, to make educated trading decisions, and highlights the benefits of this approach, such as overcoming directional confusion, increasing accuracy, and optimizing trade entries.

Takeaways

• 📊 Top-down analysis is a comprehensive method that involves examining multiple timeframes and market factors to understand market conditions better.
• 🔎 It starts with higher timeframes and zooms into lower details, providing a broad view of market direction and key levels at all levels.
• 🧭 The technique helps overcome directional confusion by identifying trends and market pressure in higher timeframes, which can inform decisions in lower timeframes.
• 📈 Increasing trade accuracy is achieved by checking higher timeframe key levels to understand how much room there is before encountering supply or demand areas.
• 🚀 Optimizing trade entries is facilitated by identifying optimal entry and exit points using insights from multiple timeframes, enhancing the precision and confidence of trades.
• 📉 The importance of not overcrowding the chart with too many concepts, as it can lead to an unusable chart when reaching the entry timeframe.
• 🔑 Key takeaways for identifying market structure levels include turning points, multiple rejections, acting as both support and resistance, drastic moves away from the area, and recent respected or created levels.
• 📝 The script emphasizes the importance of backtesting trading strategies using historical data to build confidence and prepare for potential risks.
• 🌐 The four-hour and one-hour timeframes are crucial for applying smart money concepts, including market direction, supply and demand areas, order blocks, fair value gaps, liquidity zones, and trade opportunities.
• ⏱ The use of 15-minute and five-minute timeframes is for seeking confirmations and entry reasons in lower details when necessary.
• 🔗 The video mentions the use of Trader Edge for backtesting and tracking trades, providing a detailed matrix of results and the ability to store strategies in a library.

Q & A

What is the main focus of the video?

The video focuses on demonstrating the best technique to combine multiple timeframes for a well-informed and clear chart analysis by integrating price action and smart money concepts.

What is the purpose of top-down analysis in trading?

Top-down analysis is used to gain a comprehensive understanding of market conditions by analyzing multiple timeframes and market factors, starting from higher timeframes and zooming into lower details.

Why is it important to start with the highest timeframe when conducting a top-down analysis?

Starting with the highest timeframe allows traders to get a major view of the market direction and key areas at all levels, which is crucial for making well-educated trading decisions.

What are the three main reasons for combining multiple timeframes in analysis?

The three main reasons are overcoming directional confusion, increasing accuracy by checking higher timeframe key levels, and optimizing trade entries by identifying optimal entry and exit points.

How can analyzing a higher timeframe help in overcoming directional confusion?

By analyzing a higher timeframe, traders can identify the market trend and directional bias, which can help take short entries with confidence in lower timeframes when the market seems choppy.

What is the role of supply and demand areas in top-down analysis?

Supply and demand areas help in understanding market dynamics and potential reaction points. They are used to set targets, stop losses, and avoid unnecessary risks in trading.

What is the significance of identifying market structure levels?

Identifying market structure levels is important because these levels can act as strong support or resistance when the market reaches them, influencing trading decisions and strategies.

How does the video suggest traders optimize their trade entries?

The video suggests traders optimize their trade entries by analyzing multiple timeframes to find confirmations and entry reasons in lower details, which can lead to better price points and increased confidence.

What tool is mentioned in the video for backtesting trading strategies?

The video mentions 'Trader Edge' as the tool for backtesting trading strategies, which helps in evaluating performance and optimizing strategies by fine-tuning parameters and rules.

What is the importance of backtesting in trading strategy development?

Backtesting is crucial as it allows traders to build confidence in their strategies, prepare for potential risks, and optimize their strategies by evaluating performance using historical data.

How does the video suggest traders identify key levels of market structure?

The video suggests identifying key levels of market structure by looking for turning points, multiple rejections, levels that have acted as both support and resistance, drastic moves away from the area, and recently respected or created levels.

What are the different types of timeframes considered in the video for chart analysis?

The video considers three types of timeframes: weekly and daily for identifying higher timeframe key levels, four hours and one hour for most of the analysis, and 15 minutes and five minutes for additional confirmations and entry reasons.

Outlines

00:00

📈 Introduction to Top-Down Analysis Technique

This paragraph introduces the concept of top-down analysis in trading, emphasizing its importance for a comprehensive understanding of market conditions. It explains how analyzing multiple timeframes from higher to lower details can help identify market direction, supply and demand levels, liquidity zones, and trading opportunities. The paragraph also highlights the three main reasons for using multiple timeframes: overcoming directional confusion, increasing trade accuracy, and optimizing trade entries. Examples are provided to illustrate how higher timeframe analysis can clarify market trends and avoid unnecessary risks.

05:00

📊 Step-by-Step Top-Down Analysis Process

The second paragraph outlines the step-by-step process of top-down analysis, focusing on the use of different timeframes from weekly and daily for identifying key market structure levels, to four-hour and one-hour for detailed analysis, and finally 15-minute and five-minute for entry confirmations. It emphasizes the importance of keeping analysis simple and distinguishing between weekly and daily levels. The paragraph also discusses the criteria for identifying key market structure levels, such as turning points, multiple rejections, and recent respected levels, and how these levels can indicate potential reactions in the market.

10:02

🤑 Applying Smart Money Concepts in Analysis

This paragraph delves into the application of smart money concepts within the four-hour and one-hour timeframes, explaining how to use weekly and daily levels as indicators of market control and potential trade targets. It discusses the importance of identifying market direction, supply and demand areas, order blocks, fair value gaps, and liquidity zones. The paragraph provides an example of how to interpret price action in these timeframes, including scenarios for potential short and long entries based on market reactions to key levels and order blocks.

15:03

📉 Backtesting and Multi-Time Frame Analysis Application

The final paragraph discusses the importance of backtesting trading strategies using historical data to build confidence and prepare for potential risks. It introduces Trader Edge as a tool for backtesting and tracking trades, providing a detailed matrix of performance metrics. The paragraph also applies multi-time frame analysis to the Aussie dollar as an example, illustrating how to interpret price action signals and identify potential trade opportunities based on market direction and reactions to order block zones.

Keywords

💡Top-down analysis

Top-down analysis is a comprehensive trading approach that involves examining the market from broader time frames and then zooming into more detailed levels. It's crucial for gaining a holistic view of market conditions. In the video, the technique is used to identify market direction, supply and demand levels, and trading opportunities by starting from higher time frames like the monthly and moving to lower details such as the five-minute chart.

💡Price action

Price action refers to the movement of the market price and the resulting patterns formed by these movements. It is a fundamental aspect of technical analysis and is used in the video to demonstrate how to effectively make a top-down analysis. The script mentions using price action in conjunction with smart money concepts to identify market trends and potential trading opportunities.

💡Smart money concepts

Smart money concepts involve understanding the market dynamics attributed to large, informed traders or institutions that are believed to have an impact on price movements. The video discusses applying these concepts to analyze market direction, identify supply and demand areas, and find liquidity zones, which are crucial for making informed trading decisions.

💡Market Direction

Market direction refers to the overall trend or movement of the market, whether it is bullish (rising) or bearish (falling). The video emphasizes the importance of identifying market direction from higher time frames to make more confident and precise entries in lower time frames, such as the five-minute chart.

💡Supply and Demand levels

Supply and demand levels are price points in the market where the balance between buyers and sellers is expected to change, potentially leading to a reversal or continuation of the trend. The script explains how these levels can be identified and used in conjunction with higher time frame analysis to optimize trade entries and exits.

💡Liquidity zones

Liquidity zones are areas on the price chart where there is a high concentration of trading activity, often resulting in significant price movements. The video script describes how liquidity zones can be identified and used as part of the top-down analysis to spot potential trading opportunities.

💡Order blocks

Order blocks are areas on the price chart that represent significant price levels where orders are likely to be placed by traders, potentially leading to price reactions. In the video, order blocks are used as part of the smart money concepts to identify potential entry points for trades based on the market's reaction to these levels.

💡Fair value gaps

Fair value gaps are price gaps that occur in the market, often after significant news events or changes in market sentiment. The video mentions using fair value gaps as part of the analysis to identify potential trading opportunities, especially when they are combined with other smart money concepts.

💡Backtesting

Backtesting is the process of evaluating a trading strategy's performance using historical data. The video script discusses the importance of backtesting to build confidence in a trading strategy and to prepare for potential risks. It also mentions using a tool called Trader Edge for backtesting and tracking trades.

💡Risk management

Risk management involves the identification, evaluation, and prioritization of risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events. In the context of the video, risk management is discussed in terms of setting a risk per trade, such as 2 percent of the starting balance, to avoid unnecessary risks and to ensure the sustainability of trading activities.

💡Confirmation

Confirmation in trading refers to additional signals or indicators that support a potential trade setup. The video emphasizes the importance of seeking confirmation in lower time frames before entering trades, which helps to reduce the likelihood of false signals and increase the trader's confidence in their analysis.

Highlights

Introduction to the top-down analysis technique for combining multiple timeframes in trading.

Importance of combining price action and smart money concepts for informed trading decisions.

The concept of top-down analysis explained for a comprehensive market understanding.

Avoiding confusion in market direction by using higher timeframes as a guide.

Using higher timeframes to identify market trends and confidently take short entries.

The three main reasons for combining multiple timeframes in trading analysis.

Overcoming directional confusion by zooming out to higher timeframes.

Increasing trade accuracy by considering higher timeframe supply and demand areas.

Optimizing trade entries by identifying optimal points across multiple timeframes.

The step-by-step top-down analysis technique from higher to lower timeframes.

Utilizing weekly and daily timeframes to identify key market structure levels.

Applying smart money concepts on the four-hour timeframe for detailed analysis.

Identifying market direction, supply and demand areas, and order blocks on the four-hour chart.

Using one-hour and fifteen-minute charts for trade entry confirmations.

Criteria for identifying key levels of market structure and their significance.

The importance of treating levels as areas rather than solid lines in market analysis.

Backtesting trading strategies using Trader Edge for performance evaluation.

Applying multi-timeframe analysis to different currency pairs for comprehensive understanding.

The final summary emphasizing the value provided by the video for traders.

Transcripts

hey guys welcome to another episode

in this video we will show you the best

technique to combine multiple time

frames to get a well-informed and clear

chart analysis

by combining price action and smart

money Concepts we will demonstrate how

to effectively make a top-down analysis

to identify the market Direction supply

and demand levels liquidity zones and

trading opportunities from higher time

frames to lower details

[Music]

so guys if this is something that

interests you please hit the like button

to show your support and subscribe if

you're new see you guys after the intro

[Music]

[Applause]

[Music]

so what is top down analysis

top-down analysis is a technique that

combines the analysis of multiple time

frames and Market factors to gain a

comprehensive understanding of market

conditions

starting from higher time frames and

zooming into lower details allows us to

get a major view of Market Direction in

key areas at all levels

but remember starting from the monthly

time frame applying every single concept

out there will make your chart look like

this when you reach your entry time

frame which is completely useless

this video will teach you what to

exactly look for in each of the time

frames to make a well-educated analysis

of any chart easily but first why do we

even need to combine multiple time

frames

well here are the top three reasons

number one overcoming directional

confusion here on the pound dollar five

minutes chart the market looks choppy

without any visible Direction it

continuously violates the structure

levels to both up and downsides

confusing any Trader trying to identify

the direction

but if we zoom out to The One hours time

frame you can quickly identify the

market Trend and the bearish pressure

this area is the same area on the five

minutes chart we were previously

observing

so by knowing the higher time frame

directional bias we can take short

entries with confidence in the five

minutes chart

remember that whenever you are confused

about the direction and the market keeps

violating key levels of structure you

are focusing on the wrong time frame so

analyzing the bigger picture helps you

to enhance your ability to take more

precise and confident entries

number two increasing accuracy a minor

reaction to a higher time frame key

level can be a significant Trend change

in the lower time frames so before

placing any trade we should check how

much room we have before tapping into a

higher time frame Supply or demand area

this will help us understand how to set

our targets stop losses and avoid losing

trades

here on the euro dollar 15-minute chart

we had a strong bullish move with a

clear fair value gap between the shadows

as a result we have a valid order block

which is an excellent opportunity to go

long however the market suddenly changes

Direction and ignores the demand order

block and in case you are wondering here

is why

if we zoom out to the one hour time

frame we can see that this change in

Direction could be due to reaching a

higher time frame key level that acted

as strong resistance multiple times

previously so checking the higher time

frame key levels could help us avoid

this kind of unnecessary risks

on the contrary look at another example

here in the one hours time frame we have

a move with obvious inefficiency

breaking above the previous Market

structure

so here if the price manages to pull

back to the order block Zone it would be

a perfect opportunity to enter a long

position set our stop below the swing

low and Target the next level of Market

structure in front of the price

so let's see what do we have on the

higher time frame

here on the four hours we can see that

we have recently broken above these

Supply areas so demand is in control and

we have enough room to go before

reaching the next unmitigated Supply

area in front of the price so could be a

perfect trade since we have combined

higher time frame levels and directional

bias with a lower time frame entry setup

number three optimizing trade entries

analyzing multiple time frames allows

traders to identify optimal trade entry

and exit points for instance imagine if

you were waiting for the price to pull

back to the order flow area and open

buys to go along with the bullish

momentum if we set buy orders at the

beginning of the Zone our stop will be

too large so an optimal way to trade is

to look for confirmation and open Longs

in lower time frames

this confirmation helps to get in the

trades at a better price reduces the

likelihood of false signals and

increases the Trader's confidence in

their analysis

now that we have discussed the

importance of a multi-time frame

analysis let me show you the best

technique to combine multiple time

frames to get a well-informed and clear

chart analysis

but before we continue if you have

enjoyed this video so far please smash

the like button to show your support and

comment below if you have any questions

now let me show you our top-down

analysis technique step by step which is

the process of going through a higher

time frame and scaling down to the lower

details to identify best trading

opportunities

we consider three types of time frames

in our chart analysis

starting from higher time frames first

we have weekly and daily which we only

use to identify higher time frame key

levels of the market structure

second we use four hours and one hour

time frame to do most of the analysis

including identifying Market Direction

supply and demand areas order blocks

liquidity zones and trading

opportunities

third we use 15 minutes and five minutes

time frames if we needed more

confirmations and entry reasons in lower

details

now let's apply these Concepts on the

real chart of multiple pairs to

completely understand this technique

here we have euro dollar on the weekly

time frame in the first step we Mark the

key levels of Market structure that

price have recently reacted to

we want to keep our analysis simple so

we only draw the most recent levels near

the current price for example this level

is our historical top which has recently

rejected the price twice

we have another key level in front of

the price which has acted as support

multiple times

also we could draw another key level

here

now this is the only thing we need from

the weekly time frame which is the key

levels of Market structure that have a

high chance for price to react to when

it Taps into them

so let's zoom into the daily

on The Daily time frame first we adjust

the weekly levels to get the greatest

number of touches from the daily

perspective

second we draw the daily key levels of

the market structure with another color

the reason is that we want to be able to

distinguish the weekly and daily levels

when we zoom into the lower time frame

since the higher the time frame the

greater the importance of a level

now this was also the only thing we

needed from the daily time frame but

remember you need to keep three things

in mind when drawing levels of Market

structure

first draw the levels where you could

get the greatest number of touches

second drawing from the bodies of the

candles has a higher priority

third treat the levels as areas not

solid lines

also there are five criteria that we

look for when identifying key levels of

Market structure and each one of them

makes a level more powerful

number one the turning points

turning points are the areas that have

reversed the market Trend previously the

market sees these areas as overvalued or

oversold and there is a higher chance

for the price to react to these levels

when it reaches them again

number two multiple rejections multiple

rejections from an area show that

Traders took action at the same level at

different times making it more powerful

more rejections are better but it won't

guarantee that the level will hold

when the market Taps into a level we

closely watch price action to indicate

what is happening if the rejections are

getting weaker every time there is a

higher chance for the price to break

through this level but it will be strong

support if the price reaches this area

again

number three acted as both support and

resistance if a level of Market

structure has acted as both support and

resistance previously it increases the

probability for the price to reject this

level again

number four the move away from the area

was drastic meaning that not a tiny

reaction but a true reversal the deeper

the return from a level the more

important that level is

number five recently respected or

created levels

the recent levels in front of the price

are always more effective since they are

current and new whether they are

traditional support resistance or order

blocks

now with all being said let's zoom into

the four hours time frame to continue

our analysis which is where the smart

money Concepts come in

here on the four hours we have both

weekly and daily levels visible on the

chart

each of these levels can act as strong

support or resistance when the market

reaches them so we use these levels in

two major ways first breaking each one

into the up or downsides indicates

whether the supply or demand is in

control and price can continue pushing

to the next level

second we use them as our higher time

frame targets for our trades

so the four hours is when we fully apply

smart money Concepts which includes

identifying Market Direction supply and

demand areas order blocks fair value

gaps liquidity zones and possible trade

opportunities

so here the market has recently broken

below key daily level with momentum

which indicates that Supply is in

control

currently we have an inefficient move

that created a fair value Gap and a

break of structure so the candle that

created the inefficiency is our order

block Zone which could give us a

possible short entry

but we cannot Place sell limits on this

order block since the price has rejected

a key daily level which could be a

turning point for a short-term downtrend

so we need to have bearish confirmations

in lower time frames like 15 minutes to

enter short positions

on the other hand if the price breaks

above both levels it indicates a strong

bullish momentum which could make the

price rise and test this weekly level

one more time

now let's zoom into the one hours time

frame to continue our analysis once

again we fully apply smart money

Concepts including identifying Market

Direction supply and demand areas order

blocks fair value gaps liquidity zones

and possible trade opportunities

we know that higher time frame

directional bias is bearish and we

expect the price to get rejected from

the four hours time frame order block

after mitigating this daily Zone Market

is making a deep retracement in creating

liquidity zones before reaching the four

hours order block which is another

confirmation

right now the price is in a short-term

uptrend and an ideal situation would be

for the price to change the direction

where four hours in one hour will be in

the same bearish direction

so far we've applied price action and

smart money Concepts perfectly on the

charts and we have a four hours order

block which is an area of interest for

trading

it is important to note that for a four

hour time frame order block we look for

confirmation in 15 minutes and for the

one hour time frame order block we look

for confirmations in five minutes

so here the 15 minutes chart is the last

time frame we will analyze in this

process in this time frame we only look

for confirmations and enter the

positions so first we need the price to

enter the order block Zone and create a

change of character to confirm that the

short-term uptrend is over and the

market can continue pushing downwards

if we see no change of character we

won't have any trade

our first Target would be this daily

level in front of the price and if the

market could manage to break this area

it can continue pushing downward to

reach the next weekly level in front of

the price

now this setup was just an example of

how to enter a trade and you could use

multiple price actions or smart money

strategies to enter the market

but remember before using any setup with

your real account you should backtest it

on different pairs to evaluate the

trading strategy's performance using

historical data

back testing allows traders to build the

required confidence and prepare for

potential risks associated with their

strategies optimizing their trading

strategies by fine-tuning parameters and

rules

but unfortunately it could be very time

consuming

that's why we use Trader Edge to

backtest and keep track of all trades

let's suppose we want to backtest

crossover trading setup on the euro

dollar in one hour time frame we will

first set up the chart on trading View

and adjust it then we will open trader

edges back tester and arrange it next to

the chart

here we will input our starting balance

and risk per trade which we've set to 2

percent

you can change this to any value you

prefer whether in dollars or percentages

for each individual trade

once we're done with the back testing

Trader Edge will provide us with a

detailed Matrix including important

information such as win rate maximum

drawdown and profit results

it also allows us to save the data and

add more backtests which will all be

stored in the strategy Library

if you're interested in using Trader

Edge you can sign up for a seven day

free trial by checking the link in the

description

now let's apply multi-time frame

analysis to another pair to understand

the concept completely

let's continue our analysis with the

Aussie dollar

here on the weekly time frame these are

the only visible weekly levels near the

current price so we draw them in

now let's move on to the Daily

in this time frame first we adjust the

weekly levels to get the greatest number

of touches and draw additional daily

levels if they are obvious

now let's jump into the four hours

here on the four hours chart we have a

bearish bias

after mitigating this daily level the

market has made a deep retracement to

this order block zone so here are two

scenarios if lower time frame price

action shows bearish signals at this

order block we could go short and our

primary target will be this daily Zone

and our secondary Target weekly

on the contrary if the market manages to

break and close above the order block

our four hours directional bias will

change to bullish and we expect the

price to reach the daily and weekly

levels in front of the price

now let's zoom into one hour's time

frame to observe more details

here on the one hour chart we can see a

lot of price action signals after

mitigating this four hour order block

Zone the market made a change of

character which signals that the

short-term uptrend is over and price can

possibly continue pushing downwards

here we have a perfect opportunity at

this one hour's order block to go short

and our first Target would be this daily

level and we could use this weekly level

as our long-term Target

right now there is no need to look for

confirmations in a lower time frame

unless someone wants to look for more

trades based on the analysis we made

but remember more trades do not mean

more profits

so guys I hope this video provided some

value for you if it did please hit the

like button to show your support and

subscribe to our Channel if you're new

also don't forget to comment below with

your thoughts and questions since we do

our best to answer them all see you in

the next episode