Premium and Discount zones divide the current price range (from the swing low to swing high) into halves using the equilibrium (50%) level. Discount = below 50% (cheap, look to buy). Premium = above 50% (expensive, look to sell). This concept ensures traders are buying low and selling high relative to the current range.
Equilibrium = exactly 50% of the range, Discount zone = below equilibrium (0-50%), Premium zone = above equilibrium (50-100%), Apply to any swing range or trend leg, Fibonacci 0.5 level is the equilibrium, Optimal entries in extreme discount/premium (e.g., 70-100% or 0-30%)
Buy setups when price is in the discount zone (below 50% of the range), Sell setups when price is in the premium zone (above 50%), Best entries at the OTE (Optimal Trade Entry) zone: 0.62–0.79 Fibonacci
Targets at the opposing zone — buy from discount targeting premium, sell from premium targeting discount, Midpoint (equilibrium) as partial profit target
All timeframes — apply the concept to the current trend's range
This is one of the simplest yet most powerful SMC filters. If you're buying in a premium zone or selling in a discount zone, you're doing it wrong according to SMC. Always check where price sits within the range.
Mitigation blocks are price levels where institutional traders return to 'mitigate' or close out prior losing positions before continuing in the new trend direction. When smart money takes a position that initially moves against them, they mark the level for re-entry — when price returns, they close the losing trade at break-even and add to their new directional position. This creates a powerful support or resistance zone.
Inducement is a Smart Money Concept describing the deliberate engineering of liquidity pools by institutional traders to attract retail orders before reversing price. Inducement patterns occur when price creates minor highs or lows that entice retail traders to enter positions or place stops, providing the liquidity that smart money needs to fill large orders in the opposite direction.
A Fair Value Gap is a three-candle pattern where the wicks of candle 1 and candle 3 do not overlap, creating an imbalance or gap in price. FVGs represent areas where price moved so aggressively that there was insufficient opposite-side liquidity. Price tends to retrace into FVGs before continuing, making them excellent entry zones.
Kill zones are specific time windows during the trading day when institutional activity peaks and the most significant moves occur. ICT identifies four main kill zones: Asian session (20:00–00:00 ET), London Open (02:00–05:00 ET), New York Open (07:00–10:00 ET), and London Close (10:00–12:00 ET). Trading only during kill zones improves probability.