Top Down Trading to Determine What Will Most Move Markets
- We can do top-down filtering of the broader markets to help us assess what is important and how markets will act
- Conditional analysis is particularly a top-down approach which speaks to liquidity and participation concentrations
- In this video we look at the most important fundamental theme driving the market's bearings and momentum
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How are the markets trading and what are the primary motivations for those market participants that collectively dictate the next move of the asset your intend to trade? These are the two primary questions that we should have answers before we ever contemplate jumping into a significant trade. Top down filtering is a reasonable way of whittling down a surplus of options to setups that are more likely to play out in surrounding conditions. There are a few practical applications for this big picture assessment. One that we have reference frequently as of late is the assessment of market type. Determining whether range, breakout or trends are the more frequent pace across the financial system can tell us which setups to peruse for probability's sake.
Further, conditional analysis can tap into deeper convictions in the market which in turn can reflect how its participants will change their positioning collectively. A drop in volatility can send traders reaching for yield and in turn amplify short-term volatility on fundamental surprises. Alternatively, deep liquidity can dampen speculators sway over prevailing price action and further curb volatility. The aforementioned are systemic consideration, but we also have top down evaluations for fundamentals. The average trading day is bombarded by high profile event risk; but it doesn't all move the market with the same degree of intensity. That is due to the fact that at any given time, speculative views are competing for the market's attention. is enough focus on a single theme, it can prove the most effective driver to be found in the system. The same is generally true of
Doing a top down fundamental evaluation at this nadir yields certain key beliefs that the global economy follows suit on. While the Fed's series of rate hikes and other policy discussions have stirred the pot, but the focus as of late has made vague what matters to the speculative rank. Relative monetary policy - as championed by the Fed and ECB at opposite extremes of the spectrum. It used to be any sudden jolts of volatility could generate trends and and/or explosive munitions. Yet, interests have focused with remaining powers that reflect protectionism and growth are to other crucial themes, but the ultimate interest hone in on the expected change of monetary policy programs as a guiding light for returns. We discuss the top down approach followed for fundamentals in today's Strategy Video.
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