LVL Trading Framework

LVL Framework Introduction

Overview

The LVL framework is a trading strategy developed to simplify higher-level concepts into repeatable patterns for profitable setups. It addresses common pitfalls traders face, such as getting faked out, late entries, and random stop-loss placement. The framework focuses on three core elements: Liquidity, Validation, and Lock On.

Core Issues Faced by Traders

  • Getting Faked Out: Traders often chase price without considering liquidity, leading to fake outs.

  • Late Entries: Missing the initial move and entering late, often resulting in buying tops or selling bottoms.

  • Random Stop Losses: Stop losses placed without a clear rationale, leading to inconsistent exits and emotional reactions.

  • Emotional Reactions: Trading based on emotions rather than a full understanding of the market landscape.

The LVL Framework

The LVL framework aims to provide solutions to these issues by focusing on:

  • Liquidity (L): Identifying areas where large orders or stops are located, typically at previous swing highs, swing lows, daily/weekly lows, hourly opens, and equal highs.

    • Trading into open orders at major previous swing highs and swing lows.

    • Identifying swing highs and lows is step one.

    • Prices are most likely to reverse at these areas.

    • These areas can be found on daily or weekly lows, hourly opens, and areas of equal highs.

  • Validation (V): Confirming a reversal with structure, such as a series of higher highs and higher lows (or lower highs and lower lows) on a lower time frame.

    • Confirming a reversal with structure, a series of highs and lows, or time frame continuity.

    • Looking for higher highs and higher lows or lower highs and lower lows.

    • Price moves in the direction of the most candles and time frames that are breaking within the same direction.

  • Lock On (L): Identifying the target or objective based on liquidity and validation, determining if the trade is valuable.

    • Looking for levels that we're targeting on the other side.

    • Target is what determines if we think the trade is valuable and where the price is likely to trade.

    • Prior swings, previous high to lows, or gaps. Price locks onto its objective.

LVL Chart

The LVL follows a pattern where you can use strategies such as the strat or smart money concepts to define what your trading plan is.

Liquidity Explained

  • Liquidity is when we trade into open orders at major previous swing highs and swing lows.

  • The first goal is to locate where those are.

  • Identifying where the swing highs and lows are in any chart is always step one.

  • Those areas are where prices are most likely to reverse.

  • Hourly opens and opening prices in general.

  • Areas of equal highs are where those open orders are typically located.

  • From the LVL, we don't take a trade until one of these happen.

  • Locate a space of liquidity to reverse off of, typically looking at the daily and higher time frames.

Validation Explained

  • Trend validation on a lower time frame.

  • If we have a reversal that happens on the daily, we would find a trend validation on the hourly or fifteen minute time frame.

  • If we find it on the weekly, we might use the daily or four hour time frame.

  • Confirming the reversal with structure.

  • When we validate, we're confirming the reversal with structure.

  • Structure exists in the form of a series of highs and lows, or time frame continuity.

  • We're also looking for time frames showing the same color and direction.

  • Looking for an uptrend or downtrend forming after whether we're reversing or bouncing.

Lock On Explained

  • After we've had a reversal and have had some level of a validation of the trend validation of that reversal, we're then looking for levels that we're targeting on the other side.

  • Lock on means that we're looking for our target, and that target is what determines if we think the trade is valuable and where price is likely to trade.

  • After we confirm that a reversal is true, that is when we look for where price is most likely to draw towards.

  • Prior swings, previous high to lows, or gaps.

Examples

The question here is where are we going next? Adapting where those previous highs are, relatively equal highs or lows are, or swing levels that are important to us.

We want to see what is the most recent level that has traded through or a major swing level.

Three Principles

  1. Broad Information: Connect swing highs and lows to form an expanding range, understanding price boundaries and anticipating reversals.

  2. Actionable Signals: Using signals like inside candles, hammers, and shooters at reversal points to validate trade setups.

  3. Time Frame Continuity: Aligning time frames with their direction and color to validate the trend.

Actionable Signals

  • Inside candles, hammers, and shooters signal three different things.

  • Located at a reversal, finding a hammer at that same level can give more confirmation and signal of an opportunity.

How to Break Down a Chart

  1. Identify swing highs and lows.

  2. Acknowledge an actionable signal at a point of a reversal.

  3. Establish a higher low or time frame continuity.

  4. The lock on then becomes at the place of the other side of the broad information or the other level of liquidity where those open orders are.

Three Repeatable Models of the LVL

  1. The 25¢

  2. The Parallel Channel Analysis

  3. The Open Magnet Theory

The 25¢ Model

A modification of the outside candle setup. The rules of this setup is entering on the 25% retracement.

  • Liquidity: Price hits one side of a previous range or candle, then reverses back into that range.

  • Validation: Crossing the halfway point of that previous range or candle.

  • Lock On: Targeting the other side of the range.

  • Entry: 25% retracement mark, using hammers, inside candles, or shooters on lower time frames to confirm.

  • Stop Loss: Pivot of the most recent candle or at the 12.5% level.

Example - QQQ

If we split yesterday's range into fourths, that may give us a bit of an advantage. It may make us wonder as we see this price action here, why is price bouncing around that level?

Another example on Walmart:
We hit the high of the previous day, and if we start to reverse, we may find validation in lows and lower lows, or from the time frame continuity where we establish the halfway point of the previous day and the 25% level, which is our entry point.

Example - Walmart

The range of a previous day, and if we start reversing back into the range of the previous day, we would start to line things up at this point to understand where the halfway point is.

The Parallel Channel Analysis Model

  • Liquidity: Market sweeps the channel extreme, triggering stop orders.

  • Validation: Breaking and closing through the middle of the channel with higher time frame continuity.

  • Lock On: Targeting either the middle or opposite sides of the channel.

  • Identifies when an uptrend might be forming when seeing some low and then a higher low after that.

Example - SPY

If at a bottom of the channel, we can locate a signal, such as an inside candle or a hammer that we see forming an opportunity for an entry either towards the middle or towards the top.

The Open Magnet Theory Model

Prices attempt to refresh and gravitate toward unsettled liquidity at each hourly open. This model suggests that price gravitates towards areas of unsettled liquidity, such as higher time frame opening prices or swing highs/lows.

  • Price attempts to refresh at each hourly open.

  • Price will gravitate towards where the most prominent area of unsettled liquidity is, whether that's a higher time frame opening price or swing high or swing low.

Example

At 10:30, we start a new hourly candle where price then analyzes and understands that it's brand new and looking to see where it's going to go next, trying to go to the hot spot. We have so much power to overtake previous time frame candles, at least temporarily, and looking at where the most prominent, most recent place of open orders is.

Qualifying Trades

Aim for trades with a minimum of 1:4 risk to reward ratio using the 25¢, parallel channel analysis, or open magnet theory models.

Utilizing Risk Reward

After establishing an entry point and the target to where you intend to take profit, you can estimate the risk reward of the trade based on the distance between the two.

Conclusion

My goal was to take all of the concepts that I learned in trading
and to this point that has worked for me, that is simple enough to involve especially as being part of the academy live, a lot of the concepts that we've learned to this point, and that we can have a structured process, and just following through and having a very sound and firm solid structure of our understanding of the market.
I challenge you right now to do it manually and just mark up your charts with those rectangles or those fib levels. I also want to, as well, ensure your commitment because being profitable in trading is about having that one repeatable system and just repeating it, repeating it until you find your win rate and find your comfortability so that you can perform at that level consistently.