Premium & Discount Zones
Overview
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.
Key Concepts
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%)
Entry Signals
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
Exit Signals
Targets at the opposing zone — buy from discount targeting premium, sell from premium targeting discount, Midpoint (equilibrium) as partial profit target
Best Timeframes
All timeframes — apply the concept to the current trend's range
Pro Tips
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.
More Topics in This Category
Optimal Trade Entry (OTE)
The Optimal Trade Entry is an ICT concept that identifies the highest-probability retracement zone for entering trades in the direction of the prevailing trend or order flow. The OTE zone sits between the sixty-two and seventy-nine percent Fibonacci retracement of the most recent impulsive leg, which aligns with institutional re-entry pricing. Entries at the OTE provide favourable risk-to-reward ratios because the stop is placed just beyond the swing point.
Break of Structure (BOS)
A Break of Structure occurs when price breaks a previous swing high (in an uptrend, confirming continuation) or swing low (in a downtrend, confirming continuation). BOS confirms the prevailing trend and is used to trail bias. Internal BOS occurs within a trend leg; external or structural BOS breaks the last significant swing.
Change of Character (ChoCH)
A Change of Character is the first break of structure AGAINST the prevailing trend. In an uptrend, ChoCH is the first lower low. In a downtrend, ChoCH is the first higher high. ChoCH signals a potential trend reversal and is one of the most important SMC concepts for identifying turning points.
Breaker Blocks
A breaker block is a failed order block that becomes a powerful support or resistance level when price returns to it from the opposite side. When institutional buying or selling at an order block is overwhelmed and price breaks through, the original order block transforms into a breaker block. Smart money uses these levels to re-enter in the new trend direction as they represent an area where the previous thesis was invalidated.