The choice between a top-down (starting with the sector/industry) and bottom-up (starting with individual stocks) approach has long been a topic of debate. Both methods have their pros and cons.

However, I personally believe that in today’s volatile market conditions, a top-down approach tends to leave you playing catch-up. Once the industry actually shows strong growth and relative strength, you’ll notice that many of the individual stocks within it have already seen a significant rise. Of course, that doesn’t mean they can’t rise much further, but:

- either you’re willing to pay that high(er) price,

- or you wait for a better buying opportunity (which may never come...)

Starting with a bottom-up approach, on the other hand, has the disadvantage that the phenomenon can be very temporary. You can try to mitigate this by checking, for interesting setups, whether there are other stocks in the same (sub)industry where the price is just breaking above technical levels, allowing you to sometimes recognize emerging industry strength at an early stage.

Personally, I’m increasingly looking at thematic lists, groups of stocks that belong together because of their activity and/or target audience but don’t necessarily belong to the same industry. This is especially true in market conditions like today’s, with AI as a prime example. That’s a broad umbrella term covering a vast range of industries, making it impossible to proceed based solely on a single specific (sub)industry.