Reference
Premium and Discount
Premium and discount are the two halves of a dealing range measured from its low to its high: everything above the 50% level (equilibrium) is premium, everything below it is discount. The convention is to look for buys in discount and sells in premium, on the reasoning that a trade taken away from equilibrium starts with a worse price than one taken toward it.
Last updated 2026-08-26
Key facts
- Equilibrium is the 50% level of the dealing range. It is the dividing line, not a zone.
- Premium is the upper half of the range (50-100%); discount is the lower half (0-50%).
- The levels are drawn with a Fibonacci retracement tool anchored low-to-high for a bullish range and high-to-low for a bearish one — but the only level the concept requires is 50%.
- Premium and discount are properties of a chosen range, not of a price. The same price is premium in one range and discount in another; the range selection IS the analysis.
- The dealing range is conventionally drawn between the swing low and swing high of the most recent completed expansion, not between arbitrary highs and lows.
- The idea is a filter on entry location, not a signal. Price being in discount is not a reason to buy.
- Many traders narrow the target to the 0.62-0.79 retracement band, sometimes called the optimal trade entry, rather than treating the whole lower half as equal.
- The term is standard in ICT teaching and was adopted by the broader Smart Money Concepts vocabulary; the underlying idea is ordinary mean reversion within a range and predates both.
How to draw the dealing range
Everything the concept says depends on this step, and it is the step that gets rushed. A dealing range runs from the low to the high of the most recent completed expansion — the leg that actually moved, ending where price stopped making progress and began retracing. Anchor the low at the swing low that started it and the high at the swing high that ended it.
Split that range in half. The midpoint is equilibrium. Above it is premium, below it is discount. That is the whole construction; the additional Fibonacci levels people draw are refinements of where inside each half to act, not part of the definition.
The honest difficulty: two traders looking at the same chart will often choose different swing points and therefore different ranges, and a price that is premium in one is discount in the other. The concept does not resolve that disagreement, and any account of it that does not say so is overselling. What it does do is force you to state, before you enter, which range you think you are trading inside — which is a more precise claim than most entries are built on.
Why the half matters at all
The argument is about the price you pay, not about direction. If you are bullish on a range and you buy in discount, your stop below the range low is close and your target at the range high is far. Buy the identical idea in premium and you have inverted that: a wide stop, a short run to target, and a reward:risk that needs the move to be nearly perfect to work.
Framed that way it is not really an ICT idea at all. It is the observation that entry location decides your reward:risk before the market does anything, and that the same trade idea can be excellent or unworkable depending on where in the range it was taken. The vocabulary is newer than the point.
It also explains why traders who chase are structurally disadvantaged even when their read is right. Chasing means entering after the move has already carried price toward the opposite end of the range — which is, by construction, entering at a premium in a buy or a discount in a sell.
The mistake that makes the idea useless
Treating discount as a buy signal. It is not one, and using it as one produces the single most common failure with this concept: buying every dip into the lower half of a range that is in the process of breaking down. A range only has an upper and a lower half for as long as it is still the range price is trading in. When price leaves it, everything measured from it is stale, and the trader is buying a discount that no longer exists.
The other half of the same mistake is redrawing the range after the fact. Once price has moved, there is always a pair of swing points that makes the entry look like it was taken in discount. Choosing them afterwards is not analysis, and it is the reason this concept reviews far better than it trades.
The working order is the opposite of how it is usually taught: establish direction first from higher-timeframe structure, then use premium and discount to decide where in the range you are willing to act on it. Direction, then location. Never location alone.
Premium, discount and the optimal trade entry
Many traders do not treat the whole discount half as equivalent. The optimal trade entry band — the 0.62 to 0.79 retracement of the range — is the portion most commonly used, on the reasoning that a shallower retracement often is not the pullback finishing and a deeper one is closer to invalidating the range altogether.
This is a convention rather than a measured constant, and it is worth treating as one. Whether the 0.62–0.79 band outperforms simply using the 50% level is a testable question on your own instrument and timeframe, and the answer differs enough between markets that inheriting someone else’s number is not obviously better than measuring your own.
How to test whether it improves your entries
Premium and discount is unusually easy to test, because it is a filter rather than a strategy. Take a setup you already trade and log it twice: once as you actually took it, and once with the range and the half you were in recorded alongside. After a hundred occurrences, split the results by which half the entry fell in.
Three things to read from that. Whether entries taken toward equilibrium genuinely returned a better average R than entries taken away from it. Whether the filter cost you occurrences worth having — a filter that improves the average trade while removing half the sample is not automatically an improvement. And whether the ranges you drew live match the ones you would draw now, which is the check that tells you whether the concept is doing work or just narrating outcomes.
That comparison needs entries marked without knowing what happened next, which in practice means replaying price bar by bar rather than scrolling a finished chart. On a completed chart the correct dealing range is obvious, and obvious-in-hindsight is exactly the failure mode this concept is most prone to.
Questions
What is equilibrium in trading?
Equilibrium is the 50% level of a dealing range — the midpoint between the range low and the range high. It divides the range into premium above and discount below. It is a single level rather than a zone, and it has no significance on its own; its only function is to say which half of the range price is currently in.
How do I find premium and discount zones?
Identify the most recent completed expansion leg, anchor a Fibonacci retracement from its swing low to its swing high (or high to low in a downtrend), and read the 50% level. Everything above that line is premium, everything below is discount. The additional Fibonacci levels are optional refinements; the 50% is the only one the definition needs.
Should I only buy in discount and sell in premium?
As a default, yes — but as a filter on entries you already have a directional reason to take, not as a reason to take them. Buying in discount improves the reward:risk of a bullish idea because the stop sits closer to the range low and the target further away. It does nothing to make a bullish idea correct, and buying discounts inside a range that is breaking down is the most common way this concept loses money.
What is the difference between premium/discount and supply and demand?
They answer different questions. Supply and demand identifies specific price areas where an imbalance was left behind, and is a claim about levels. Premium and discount is a claim about position within a range — relative, not absolute — and the same price is premium or discount depending on which range you measure. In practice traders use them together: the range says which half to act in, the zone says where in that half.
Which timeframe should the dealing range be drawn on?
The one that sets your direction, which is usually higher than the one you enter on. A common arrangement is to take the range from the 4-hour or daily expansion and then enter on the 15-minute or 5-minute inside the appropriate half. Drawing the range on the same timeframe you enter on tends to produce a new range every few candles, which makes the filter meaningless.
Does premium and discount actually work?
As a general claim it is not answerable, and the useful version of the question is narrower: does filtering your existing entries by which half of the range they fell in improve your average R, and by enough to justify the occurrences it removes? That is measurable on your own trades. What is not in dispute is the arithmetic underneath it — an entry closer to your invalidation and further from your target has a better reward:risk, whatever you call the halves.