There are two ways which can be followed for doing the forex technical analysis. Though, technical analysis helps the traders in predicting future prices for sales, commodities, etc. So, it should be done using the correct strategies or methods. There are broadly two strategies which should be followed for technical analysis. They are listed below–>
WHAT IS TOP-DOWN APPROACH?
In the top-down approach for forex technical analysis, the whole market is analyzed first. After analyzing the whole market, it is broken down into several parts. For example, industries, sectors, individuals, etc. The top-down approach is majorly used by short term investors. Some steps are listed down, which should be followed for doing top-down technical analysis–>
- Review index and market performance.
- Review industry and sector performance.
- Review technical, company and fundamental news.
WHAT IS BOTTOM-UP APPROACH?
In the bottom-up approach for technical analysis, the industries, sectors, stocks are analyzed individually and then integrated. We can say that the bottom-up approach is the opposite process of the top-down approach. The bottom-up approach focuses more on the individual company and its fundamentals rather than the whole industry and all the companies in it.
DIFFERENCE BETWEEN BOTTOM-UP APPROACH AND TOP-DOWN APPROACH
Here are some differences between bottom-up and top-down approaches for technical analysis. They are listed below–>
- The top-down approach finds out the risks by analyzing the operational failures internally. On the other hand, the bottom-up approach finds to analyze the processes individually for finding risks. This is done with the help of models.
- In the top-down approach, there is no difference between low-frequency high severity and high-frequency low severity. On the other hand, the bottom-up approach differentiates between both of them.
- The top-down approach is easy and simple. On the other hand, the bottom-up approach is complex.
- The top-down approaches look forward. On the other hand, bottom-up approaches look backward.
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