The Lab Model - Overview 11th April Post PPI

Summary

The video script discusses the Lab Model, a trading tool designed for daily market analysis. It identifies retraces and continuation patterns, focusing on standard deviation and liquidity grabs. The model operates on various timeframes, favoring shorter ones like 5 minutes. It involves identifying specific zones and signals like SMT and imbalances to execute trades, aiming for consistent daily market participation with an emphasis on risk management and strategic trading.

Takeaways

• 🔍 The Lab Model is designed to capture retraces and continuation patterns from MXM in the market, and it appears every day across multiple time frames.
• 🕒 The model is generally applied to lower time frames (1 to 5 minutes), and is mainly traded during the New York session, though it also appears in the London session.
• 📉 The core strategy involves trading from a reversal zone, marked between -2 to -2.5 standard deviation, and targeting a move to a discounted area.
• ⚙️ Standard deviation is used to mark potential reversal zones, and once price reaches this area, traders look for opportunities to trade back into the discount.
• 🔑 SMT (Smart Money Technique) is the key trigger for taking trades, signaling liquidity grabs and providing validation for potential market moves.
• 📊 Once an SMT signal is detected, traders look for an inversion of an imbalance and wait for a closure below the imbalance before entering a trade.
• 💼 The model accounts for potential risks such as slippage, and traders are advised to manage their risk accordingly, particularly on lower time frames.
• 🎯 Two main types of trades are highlighted: reversal trades (from the -2 to -2.5 zone) and continuation trades, which only occur after the reversal trade is complete.
• 🔄 Reversal zones are also marked at -4 standard deviation for further opportunities if price extends beyond the first reversal area.
• 📝 A detailed PDF guide for the Lab Model is being prepared, but this video serves as an initial overview for members of the community to understand and backtest the strategy.

Q & A

What is the Lab Model mentioned in the transcript?

The Lab Model is a trading strategy developed to capture retraces and continuation patterns in the market, particularly in MXM. It is designed to find trades daily across various timeframes, typically focusing on smaller timeframes like 5-minute to 1-minute charts.

What are the key components of the Lab Model?

The key components of the Lab Model include identifying liquidity grabs, standard deviations, reversal zones (between -2 to -2.5 deviation), SMT (Smart Money Trap) as the entry trigger, and using premium and discount zones for targeting trades.

What does SMT stand for, and how is it used in the Lab Model?

SMT stands for Smart Money Trap. In the Lab Model, SMT is used as the primary signal for short or long entries. The model waits for SMT to appear, signaling that liquidity has been grabbed, and then looks for imbalances or deviations in the price to take trades.

Why does the Lab Model use standard deviation for identifying trades?

The Lab Model uses standard deviation to identify key zones in the market where liquidity is grabbed and where price is likely to reverse or continue. The reversal zones are typically between -2 to -2.5 deviations, and the continuation trades extend to the -4 deviation level.

What is the difference between a reversal trade and a continuation trade in this model?

A reversal trade occurs after price moves to a key zone (such as -2 to -2.5 deviation) and is expected to reverse back into a discount or premium. A continuation trade happens after the reversal trade, where price continues in the same direction until it reaches the -4 deviation level.

How does the Lab Model handle stop losses and invalidations?

In the Lab Model, stop losses are placed above the SMT or inversion point. If price moves beyond the standard deviation range or breaks the SMT structure, the trade is considered invalid, and traders are advised to exit. The model also accounts for slippage, particularly in Futures trading.

What timeframes are most commonly used in the Lab Model?

While the Lab Model can be applied to all timeframes, it is most commonly traded on lower timeframes such as the 1-minute and 5-minute charts. Higher timeframes like 15-minute or hourly charts offer more significant probability but may come with larger stop losses.

How does the Lab Model deal with news events and market manipulation?

The Lab Model acknowledges that news events and liquidity grabs (manipulation) are common. Traders are advised to wait for price to stabilize and show SMT or standard deviation signals before taking trades. News-related moves are considered accumulation or manipulation phases, which lead to distribution.

How can traders manage risk and take profit in the Lab Model?

Traders can manage risk by setting stop losses at logical lows in discounts and moving to break even once the trade is in profit. For taking profit, the model uses predetermined levels such as the -4 deviation level or discount areas. Trailing stop losses or partial exits can also be used.

Why is backtesting emphasized in the Lab Model?

Backtesting is highly recommended in the Lab Model because it allows traders to familiarize themselves with the patterns, validate the model's effectiveness, and fine-tune their strategy. The model appears consistently in the market, but experience and practice are required to spot high-probability setups.