5 Stocks to Watch Out Using Top-Down Approach
By Brijesh Bhatia (@bbrijesh9)
Pune, 9th November 2024: The Top-Down Approach is a popular method for analysing stocks, sectors, or entire markets by starting with a broad perspective and narrowing down to more specific details. This approach is widely used in technical analysis and is particularly effective when used with Point and Figure (P&F) charts, a type of chart that focuses on price movement and eliminates time. The concept is to identify broad market trends first and then analyse individual stocks or sectors that align with those trends.
With Definedge RZone, the Top-Down Approach Scanner is a specialised tool designed to help traders apply this method in real time. It automates the process of identifying stocks based on price trends and sector performance.
When using the scanner, you can choose one or two box values (representing price movement) and a reversal value. These values are crucial in determining when a new trend or pattern is confirmed on a P&F chart.
Once the analysis is complete, the scanner grades stocks based on the pattern observed on their P&F charts. Stocks that show strong bullish patterns, such as sustained upward price movement, will be rated higher, while those with weak or neutral patterns will receive lower scores. This grading system allows traders to quickly assess which stocks are showing promising technical patterns and which are underperforming.
Here is the list of stocks from Nifty50. We scanned it using 0.25% X 3 on the daily chart, with the denominators Nifty50 and Nifty500.
- Apollo Hospital
- M&M
- L&T
- Wipro
Here is the list of stocks from Nifty50 using the slightly higher percentage (1% X 3) for those looking from the medium-term perspective.
- Apollo Hospital
- BEL
- L&T
- Wipro
Consolidating the list from the short and medium term, here are the five stocks that score the highest.
- Apollo Hospital
- M&M
- L&T
- Wipro
- BEL
Benefits of the Top-Down Approach Scanner
Focus on Market Trends: By starting with a broad view of the market or sector performance, the Top-Down Approach helps ensure that your stock picks are aligned with the overall trend, increasing the likelihood of success.
Objective Stock Grading: The scanner removes much of the subjective decision-making by grading stocks based on their chart patterns. This makes comparing multiple stocks and identifying the most promising candidates easier.
Multi-Dimensional Analysis: Comparing stocks against their benchmark index, Nifty50, and the broader market index, Nifty 500, adds a layer of depth to the analysis, helping you focus on stocks with muscular relative strength.
Flexibility: The scanner can be customised to suit various trading strategies and preferences by adjusting the box and reversal values and choosing different denominators.
The Top-Down Approach Scanner is a powerful tool for traders who want to analyse stocks systematically based on broader market and sector performance. By leveraging the unique properties of P&F charts and multi-denominator analysis, this tool helps you identify top-performing stocks more precisely. Whether you are looking for stocks to trade in the short term or investments for the long haul, the Top-Down Approach Scanner can help streamline your decision-making process and improve the accuracy of your picks.
Disclaimer: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. This article is strictly for educative purposes only. As per SEBI guidelines, the writer and his dependents may or may not hold the stocks/commodities/cryptos/any other assets discussed here. However, clients of Definedge may or may not own these securities.
(About Writer: Brijesh Bhatia has over 18 years of experience as a trader and technical analyst in India’s financial markets. He is a well-known face in the business channel as a Market Expert and has worked with broking giants like UTI, Asit C Mehta, and Edelweiss Securities. He is currently a Senior Research Analyst and Editor at Definedge.)
