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What is Top Down Trading?

Forming a trade narrative from the top down is a great way to identify the coming potential growth sectors. Here’s how you too can start to identify the next sector breakout with a top-down trading approach:

What is top down trading?

This is actually quite a hard question to answer in just a few words. Essentially, top-down trading involves

  • Identifying a theme or trend in the market.
  • Analyzing an important specific sector.
  • Coming up with a portfolio thesis to capitalize on that.

Host Andrew Baxter says that this kind of thematic investing where you aim to identify something relevant, that’s going in the world and then trade on it. Start with the big picture, funnel this down to a specific sector, to a particular industry. A great example of this is COVID-19 and the rise of ‘stay at home’ stocks.

Many investors here capitalised on a big picture headline of people working from home. They broke it down and invested heavily into stocks like Zoom and Amazon which profit from people staying at home. This is a great example of trading from the top down.


Case study: cyber security

Amidst the market data glitch on ASX put entire stock market halt for a day on November 16th; one of interesting sectors to discuss is cybersecurity. The rise of cybercrimes has skyrocketed as of late because everyone has been locked in at home. Probably spending more time online or in a virtual is setting. Ransomware and malware have been wreaking havoc across the virtual environment, more people rely on technology within their everyday lives.

When trading the ASX on Nov 16th came to a standstill for a whole day due to a market ‘glitch’, many believed that this was due to a potential hack or cyber threat to their data. Luckily it wasn’t, however, this is a great example of how real-time news, or a ‘theme’ in the market, can be turned into real dollars merely by the occurrence of a unique event.

The importance of cyber security

To continue the theme of cybersecurity, how to shapes up as a top-down approach, host Andrew Baxter says look at the evolution of the financial services industry as an example. As an old school stockbroker, Andrew’s personal clients list their private details were all contained on paper. Now, everything’s contained throughout CRM’s or databases usually extremely sensitive information attached in virtual landscape.

Cyber hackers pose a huge threat to the architecture of the online business. So how do you turn this them into a trade? Well if you think about certain businesses that act means of protection from these crimes you may be onto something. Companies like White Hawk (ASX: WHK) or Tesserent (ASX: TNT) are two companies in the cybersecurity space that have particularly performed as investments in this space. Trading up somewhat 850% and 130% respectively just this year.

More broadly, ETF’s like HACK or CIBR has also served as a profitable investment, up almost 20% YTD. For those who claim you’re getting to the party late with cybersecurity, the fact of these businesses are only just getting started and they’re a great way to trade from the top down.

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How to create and profit from your own story

Learning how to create a top-down view and then trade on it is something that comes with practice. Host Andrew Baxter says to dissect and then form a tradeable to applied market expert knowledge on fundamental analysis is critical, to break down the headline.

This is something Andrew teaches through AIE, to any investor looking to identify the next breakout sector or stock.

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