Introduction
Top-down analysis is the process of starting from higher timeframes and drilling down into lower ones to frame trades. It ties together everything we’ve covered—daily bias, draw on liquidity, timeframe alignment—and creates a simple structure to keep your charts clean. While some traders overcomplicate this step, it doesn’t need to be hard.
The Purpose of Top-Down Analysis
Top-down analysis is about context. It helps you:
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Identify external and internal liquidity.
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Mark relevant PD arrays like fair value gaps, breakers, and swing highs/lows.
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Stay aligned with higher timeframe order flow.
By doing this before the week starts, you avoid forcing trades or reacting impulsively intraday.
The Process
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Start with the Weekly
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Mark off external liquidity runs (major highs/lows).
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Identify key fair value gaps or breakers.
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Note inducements where price ran one level but hasn’t fully delivered.
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Move to the Daily
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Confirm order flow.
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Mark new inefficiencies or significant swing points.
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Identify if price is in premium, discount, or equilibrium.
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Drop to the Hourly (or 4H)
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Refine points of interest.
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Begin framing where you’d look for trades during active killzones.
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Set alerts at the levels you marked to avoid watching price all day.
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Execution
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Once price trades into your higher timeframe POIs, drop down to the M5 or M1 to look for your entry model.
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Only execute if displacement confirms—otherwise, let it go.
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Example Walkthrough
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Indices (NQ/ES): Weekly charts show external liquidity was taken. Daily confirms order flow remains bullish. Hourly chart highlights a breaker and a fair value gap to watch during New York.
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Dollar Index: Weekly shows an inverse fair value gap as external liquidity. Daily chart adds a clean draw to the upside. Bias remains bullish unless a key level is invalidated.
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Oil: Weekly is messy. Daily provides clarity with a fair value gap and inducement. Focus shifts to shorts until proven otherwise.
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Gold: Weekly breaker and fair value gaps marked. Daily shows price in discount. Expecting a stop run before continuation higher. Execution will come once displacement confirms during New York.
Key Tips
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Don’t clutter your chart—three to four PD arrays are enough.
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Keep previously violated PD arrays on the chart; they help confirm order flow.
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Focus only on a few instruments (NQ, ES, oil, gold) instead of trying to map everything.
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Do this prep on Sunday or Monday so you’re ready for the week.
Final Thoughts
Top-down analysis is the backbone of trade preparation. Done correctly, it gives you a clean roadmap to follow and keeps you disciplined. Keep it simple: mark higher timeframe PD arrays, set alerts, and wait for price to trade into your zones before acting.