ICT / SMC Concepts · Lesson 12
Premium & Discount Zones
Learn how a price range can be divided around its 50% midpoint into premium, equilibrium and discount.
What Are Premium & Discount Zones?
In this technical-analysis framework, traders first define a price range using a meaningful Swing Low and Swing High. That range is then divided in half.
The midpoint is Equilibrium, at 50%. The upper half is Premium. The lower half is Discount.
These words are relative to the selected price range. They do not describe intrinsic or fundamental value.
First, Define the Range
Before you can find Premium or Discount, you need two meaningful points: a Swing Low and a Swing High. Together they define the range being measured.
Start with the Swing Low. Now find the Swing High. These two points define our range.
Select the Range
Find the swing low, then the swing high, then see the range they define.
Find Equilibrium
Split the range in half. The midpoint is Equilibrium.
= (110 + 100) / 2
= 105
Show the Midpoint
The same range. Now split it in half.
Discount Zone
DiscountThe Discount Zone is the lower half of the selected range. In the FluxCharts framework, price below the 50% equilibrium level is treated as trading in the Discount portion of that range.
How Traders Plot the Zones
The source uses a Fibonacci Retracement tool, set to show only three levels: 0, 0.5 and 1.
Anchor the first point on the Swing Low and the second on the Swing High. The area from 0 to 0.5 is the Discount Zone. The area from 0.5 to 1 is the Premium Zone.
You do not need a Fibonacci tool to understand the idea. It is just three levels.
Where Is Price Now?
Swing Low 100. Swing High 110. Equilibrium is 105. Look at the current price in each example.
Knowledge check
Example A
Current price is 103. Where is price?
Knowledge check
Example B
Current price is 108. Where is price?
Knowledge check
Example C
Current price is 105. Where is price?
The Range Matters
The same price can be Premium in one range and Discount in another. So first know which swing range you are analysing.
Midpoint 100. Price 102 is above it.
Midpoint 105. Price 102 is below it.
Does Premium Mean Sell and Discount Mean Buy?
Not automatically. Inside a range, price can:
≠ AUTOMATIC BUY
≠ AUTOMATIC SELL
The source says Premium and Discount should not be traded by themselves, and suggests combining them with other analysis.
Price in Discount: Two Endings
The same range, and price in the lower half.
Price in Premium: Two Endings
A range measured from a swing high down to a swing low, with price in the upper half.
Common Mistakes
Marking Premium/Discount without defining a range
Correction: First identify the Swing Low and Swing High.
Using the wrong midpoint
Correction: Equilibrium is the 50% point of the selected range.
Thinking Discount means cheap, fundamentally
Correction: It only means the lower half of this technical range.
Thinking Premium means price must fall
Correction: Price can continue higher while remaining in Premium.
Using Premium/Discount as an automatic trade signal
Correction: Treat the zones as context.
Knowledge Check
Knowledge check
Check 1
Swing Low 100. Swing High 120. What is equilibrium?
Knowledge check
Check 2
Same range, 100 to 120. Current price is 106. Where is price?
Knowledge check
Check 3
Same range. Current price is 117. Where is price?
Knowledge check
Check 4
Does price being in Discount guarantee it should rise?
Your Turn
Where Is the 50% Equilibrium?
The swing low, swing high and current price are shown. Three levels are lettered.
Which level is the 50% equilibrium?
Knowledge check
Now the zone
The midpoint is 105. Is current price in Premium or Discount?
Second practice. A new range. Find the swing low, the swing high, the equilibrium and the current zone. Say each answer to yourself first, then reveal it.
Another Range: Quick Check
Swing low 200, swing high 240. Find them, then the midpoint, then the zone.
- Original
- —
- Invalidation
- —
- New role
- —
How to find Premium & Discount
- Step 1: Find the Swing Low.
- Step 2: Find the Swing High.
- Step 3: Measure the range.
- Step 4: Mark the 50% midpoint.
- Step 5: Above 50% = Premium.
- Step 6: Below 50% = Discount.
Where Can Premium & Discount Be Used?
On any timeframe. The source suggests looking at broader, higher-timeframe ranges when judging whether price is in Premium or Discount. No timeframe is universally best.
What You Learned
- Premium and Discount are defined relative to a selected price range.
- A Swing Low and Swing High define that range.
- The 50% midpoint is called Equilibrium.
- Above 50% is Premium.
- Below 50% is Discount.
- The selected range matters.
- Premium does not automatically mean sell.
- Discount does not automatically mean buy.
PREMIUM / DISCOUNT = WHERE PRICE SITS INSIDE THE SELECTED RANGE. Not a guaranteed direction.