In earlier articles I covered zones of interest: imbalance and Order Block. But a zone alone does not answer an important question: is price expensive right now? Premium and Discount answer it.

How it works. Take the current trading range: from a significant low (swing low) to a significant high (swing high) that the move runs between. The middle of the range, the 50% level, is called equilibrium. Everything above 50% is Premium, the "expensive" zone. Everything below is Discount, the "cheap" zone.

The logic is not mystical, it is arithmetic. Take a range of 100 points. Buying at the 25% level (in Discount) with a stop under the range low risks 25 points for a target of 75: a risk to reward of 1 to 3. Buying at the 75% level (in Premium) risks 75 points for a target of 25: 1 to 0.33. All else equal, entering in Discount gives the better ratio, and entering in Premium is the opposite: you pay more and less potential is left.

How it combines with structure. In an uptrend I look for buys and wait for a pullback into Discount, especially if an Order Block or an unfilled imbalance sits there. In a downtrend it is the mirror image: sells from Premium. If price is in Premium and you want to buy, that is a reason to wait, not to chase the move.

What Premium and Discount do not do:

  • They do not give an entry signal on their own. They are a filter, not a trigger.
  • They do not guarantee a reversal at the 50% level: in a strong trend price can trade in Premium for a long time and never enter Discount.
  • They do not work without choosing the right range: ranges differ across timeframes, and the same price can be in Discount on M15 and in Premium on H4.

That is why I build entries on a combination: structure (IDM, CHoCH, BOS) sets the direction, Premium and Discount filter the entry price, a zone of interest (Order Block, imbalance) gives the point, and confirmation lowers the risk. On structure: IDM, CHoCH, BOS in plain words.

Common mistakes:

  • Measuring the range from random points instead of significant structural extremes.
  • Buying in Premium just because the trend is up.
  • Waiting for a touch of exactly 50%: it is a zone, not a precise line.
  • Mixing timeframes: the range from a higher one and the entry from a lower one, with no clear link.

I will review your markup and show where the range was chosen wrongly: kovalev.trade/trading

#trading #smartmoney #premium #discount #marketstructure