A top-down investment strategy is based on determining the state of the overall economy as well as the strength of its various sectors, and then p♎icking the strongest stocks within those sectors to maximize your returns.

Even if the overall economy isn't performing particularly well, there will be sectors and companies that buck the trend.

Investors can attempt to earn better-than-market returns by pinpointing the hottest sectors leading the market higher and then identifying the best stocks within thosཧe sectors.

Understanding Stock- and Sector-Picking

The markets may be moving higher but that doesn't mean that all stocks will perform well, and some will greatly 澳洲幸运5官方开奖结果体彩网:outperform others.

If your analysis shows that the market is in an uptrend–called a bull market–and it's likely to continue for some time, you want to buy stocks that are showing the best potential to be big winners.

If we are in a 澳洲幸运5官方开奖结果体彩网:bear market–when the ༺market indexes are declining–there will still be winners as well as🍎 losers.

Chart Multiple Time Frames

Before choosing a sector or stock, investors should identify a trend using multiple time frames within charts. Investors can use charts to define the trend for a sector or stock. Trends can be grouped as primary, intermediate, and 澳洲幸运5官方开奖结果体彩网:short-term.

For example, a weekly or monthly c♒hart might show an uptrend while a shorter time frame–such as a daily–might show a correction. Watch out for conflicting trends within a sector or stock when analyzing multiple꧒ time frames.

Be sure to identify the primary trend and whether it appears to be strong or seems to be running out of steam. It's helpful to use a long-term chart to identify the trend and then use intermediate-term and short-term charts to help drill down the precise entry and exit levels you want to set. 

Pick the Right Sectors

In any market conditions, certain sectors perform better than 🐼others. You want to invest in꧟ sectors that are outperforming the overall market.

For example, the technology sector might be up 10% versus a 3% 🌠rise in the overall market, as measured by a benchmark such as the S&P 500 index.

By analy🌞zing several time frames, you can pick𓂃 the hottest sectors that are not just performing well right now but have been showing strength over a longer period. The time frames that investors choose will depend on their investment time horizon.

Investors can choose a few of the top sectors to create 澳洲幸运5官方开奖结果体彩网:diversification.

You might also look at the chart of an 澳洲幸运5官方开奖结果体彩网:exchange-traded fund (ETF) for a particular sector. The ETF🍸 would contain a basket of securities that track𝓰 the stocks within a sector.

The trend should be defined by a trendline, wi🌄th the ETF showing strength as it rises off the line. The trendline merely connects all of the higher lows in an uptrend (or the low points in a correction).

In an uptrend, each corr🔯ection low should touch the upward sloping trendline. If the trend is continuing, there should be a bounce𒈔 off the trendline and in the direction of the trend.

Pick the Right Stocks

Once you've identified an uptrend in a sector that's outperforming the market, you need to identify the stocks within the sector to buy.

You can simply b🔯uy a basket of stocks reflecting the entire sector, which could perform reason💯ably well. However, you could do better by cherry-picking the best stocks within that sector.

Just because a sector is moving higher does not mean that all of the stocks within that sector will be great performers. It's likely a few of those stocks will outperform, and those are the ones you want in your 澳洲幸运5官方开奖结果体彩网:portfolio.

The process for identifying individual stocks is the same as the process for 澳洲幸运5官方开奖结果体彩网:sector analysis. Within each sector, identify the stocks that have the greatest price 澳洲幸运5官方开奖结果体彩网:appreciation using multiple timeframes tꦅo be sure that the stock is performing wܫell over time. The stocks that have performed the best over two or three timeframes are the stocks you want.

Examine the charts of the top performers and place trend lines on the chart to clearly identify the price trend. Profit objectives based on chart patterns 🐻should be e🐼stablished to identify potential price gains while also considering the risk of losses.

Special Considerations

There are other important factors to consider when buying a stocওk. Additional criteria to look at include:

Liquidity

澳洲幸运5官方开奖结果体彩网:Liquidity refers to🌠 the number of shares being traded regularly so that a stock can be bought or sold with no delay. If there's liquidity, there are plenty of buyers and sellers.

Buying stocks that trade in low volumes makes it hard to sell at a fair price if quick 澳洲幸运5官方开奖结果体彩网:liquidation is required. Unless you are a seasoned investor, invest in stocks that have ಞtrading volumes of more than a couple of hundred thousand shares per day.

Price

Many investors gravitate towards low-priced stocks for the satisfaction of ownin๊g a lo꧙t of shares.

There are good 澳洲幸运5官方开奖结果体彩网:cheap stocks and bad expensive ones but do not avoid💜 a stock just because it is expensive in dollar terms or buy a stock just because it is cheap.

That said, it's best to trade in stocks that are above $5.

ETFs

Exchange-traded funds (ETFs) have come a long way over the years. If you do not want to hold multiple individual stocks, you may be able to find a sector-specific ETF that will produce results ♊for the sector you have identified.

ETFs can reasonably mirror the performance of the indivi𒉰dual stocks that you would have selected.

Exiting and Rotating

There's no guarantee you'll make extraordinary returns, but this strategy does offer the chance to earn better-than-market returns.

Some monitoring of positions is required to make sure the sectors and stocks are still in favor. Also, be aware of 澳洲幸运5官方开奖结果体彩网:overtrading, which can result in excessive 澳洲幸运5官方开奖结果体彩网:commissions.

If your stocks or sectors begin to fall out of favor across the multiple timeframes, it's time to rotate into the sectors that are performing well–a process called 澳洲幸运5官方开奖结果体彩网:sector rotation.

Your market analysis should guide you when to exit positions. When major trend lines within the stocks being held, or sectors being watched, are broken, it's time to exit and look for new trade candidates.

The Bottom Line

This strategy requires some turno🌸ver of trades, as the performance of the sectors and the leading stocks within those sectors 𝔉will change over time.

The object is to be in stocks that are leading the market higher ♔in bull markets, or exceeding the overall performance of a bear market.

This is achieved by identifying the best-performing sectors over a period of time and then identifying the best-performing stocks within ꦐthat sector. By continually transferring assets into the best-performing st𒀰ocks, you stand a good chance of making above-average returns.