What Is a Worked Example of Top Down Analysis?

What top down analysis means (mechanics before implications)

Top down analysis is a structured way to analyze price by starting with broader context (typically higher timeframes) and then refining with more detail (typically lower timeframes). The core mechanics are the same each time:

Identify the higher-timeframe context (for example, an overall direction, range, or regime).
Translate that context into expectations for the next lower timeframe (for example, “where should price likely pause or break within the context”).
Use the lowest timeframe you are willing to act on to define concrete observations (for example, where a move has actually changed behavior).
Verify that the lower-timeframe observations are consistent with the higher-timeframe context.

A “worked example” should show every assumption that turns this idea into calculations or specific checks.

Worked scenario example with explicit assumptions

Below is a purely illustrative numerical scenario. It does not use live prices and it does not promise any outcome. It is meant to demonstrate how you can apply the method transparently.

Assumptions

We analyze three timeframes: H1 (higher), M15 (middle), M5 (lower).
“Context” on H1 is defined using a simple rule: price is in a bullish regime if the most recent swing low is higher than the previous swing low.
On M15, we look for a pullback that stays inside a context-defined area. We define that area as the last H1 range: from H1 support S=1.1000 to H1 resistance R=1.1100.
On M5, we define a confirmation moment using a behavioral check: after a pullback, the next M5 swing low remains above a chosen threshold.
Costs and execution are not modeled as real spreads or fees; instead we use a generic “all-in cost” of 0.5% of the planned price move to represent real-world frictions.

Step 1: Higher-timeframe context (H1)

Assume that on H1, the latest swing low is 1.1020, while the previous swing low was 1.0985. Because 1.1020 > 1.0985, the H1 regime is bullish by our rule.

We also assume that the last meaningful H1 range is S=1.1000 to R=1.1100. This creates an operational “map” of where pullbacks and advances matter.

Assume that on M15, price pulls back toward support but does not break below S=1.1000.

We set a planning level for the confirmation threshold on M5 as follows:

Planned confirmation threshold T = S + 20% of the range width
Range width W = R − S = 1.1100 − 1.1000 = 0.0100
T = 1.1000 + 0.20 × 0.0100 = 1.1020

Notice that T is not a universal constant; it is chosen for this example and must be stated.

Step 3: Lower-timeframe confirmation (M5)

Assume that after the M15 pullback, the next M5 swing low is recorded at 1.1030. Our confirmation rule says the M5 swing low must remain above T.

Since 1.1030 > 1.1020, the lower-timeframe behavior is consistent with the higher-timeframe bullish context.

Step 4: Turning observations into a testable plan (with assumptions)

For illustration, we compute three transparent levels:

A reference “target” level: U = R − 10% of the range width
U = 1.1100 − 0.10 × 0.0100 = 1.1090
A “stop” level: L = T − 10% of the range width
L = 1.1020 − 0.10 × 0.0100 = 1.1010
A reference entry price: E = the M5 confirmation swing low plus 10% of the difference to S

Compute E:

Difference from T to S is T − S = 1.1020 − 1.1000 = 0.0020
10% of that difference is 0.0002
E = 1.1020 + 0.0002 = 1.1022

Now compute the gross distance to target and to stop:

Gross move to target = U − E = 1.1090 − 1.1022 = 0.0068
Gross move to stop = E − L = 1.1022 − 1.1010 = 0.0012

A simple gross reward-to-risk ratio (distance-based) is:

0.0068 / 0.0012 ≈ 5.67

Finally, we incorporate the assumed generic “all-in cost” as 0.5% of the planned target move:

Cost estimate = 0.005 × 0.0068 = 0.000034
Net distance to target ≈ 0.0068 − 0.000034 = 0.006766
Net reward-to-risk ≈ 0.006766 / 0.0012 ≈ 5.64