Premium and discount

How to mark premium and discount

1. Pick the range. Use the swing low and swing high of the latest leg that did something meaningful: broke structure or swept liquidity. Smart-money traders call it the dealing range. Mark the ends from the wicks, as you would any swing point.
2. Find the midpoint. Equilibrium = (range high + range low) ÷ 2.
3. Read the halves. Above equilibrium is premium; below it is discount. In a bullish range you look for buys in discount. In a bearish range you look for sells in premium.

When price makes a new high (or low) beyond the range, the range extends and the midpoint moves with it. Premium and discount are always relative to a range, never fixed prices.

What traders disagree on

• Which range. This is the big one, and it is a judgment call. Minor swings give a midpoint that means little; the same price can be discount on one timeframe and premium on another.
• Is halfway deep enough? Some traders split each half again, at 25% and 75%, and treat the outer quarters as "deep" discount or premium. Others wait for the 62–79% retracement band called the optimal trade entry.
• Whether it is a filter or a signal. Most treat it as a filter: a reason not to buy high, not a reason to buy low on its own.

StraviFX's glossary uses the plain 50% split. Whatever range rule you choose, decide it before you look for the trade, not after, or you will always find a range that says "discount".

A worked example

A 4-hour GBP/USD chart. The prices are an illustration, not real data.

• The range: a bullish leg from a swing low at 1.2600 to a high at 1.2800 that broke structure. Equilibrium is (1.2800 + 1.2600) ÷ 2 = 1.2700. Above it is premium; below it, discount.
• The plan: buy, with the stop at 1.2585 (15 pips below the swing low) and the target at the range high, 1.2800.
• Buy A, in premium at 1.2760: 175 pips of risk for 40 pips of reward, 1:0.23. On a $2,000 account risking 1% ($20), that is 0.01 lots (rounded down), risking $17.50 to make $4.
• Buy B, in discount at 1.2660: 75 pips of risk for 140 pips of reward, 1:1.87. The same $20 buys 0.02 lots, risking $15 to make $28.

Same market, same stop, same target. Only the entry changed, and it decided whether the trade was worth taking. The risk-reward calculator and the lot size calculator do this math for any levels.

Why it matters

Premium and discount put a number on the old rule: buy low, sell high. Buy A above is a common beginner trade: the direction is right, but it buys after the move, risks a lot to make a little, and needs to win about four times out of five just to break even. Checking where price sits in its range takes a few seconds and filters out those trades.

Common mistakes

• Buying discount in a downtrend. In a bearish range, discount is where sellers take profit, not where you buy. The trend decides which half you trade from.
• Drawing the range from minor swings. A range made of two small wiggles gives a midpoint that means nothing. Use swings that broke structure or took liquidity.
• Treating discount as a signal. Price in discount only means it is cheap relative to the range. Wait for a reason to buy there, such as an order block or a sweep of a low.
• Waiting forever. Strong trends often don't pull back that far. If price never reaches discount, there was no trade under your rules, and that is fine.

Questions

Premium and discount in the app

The StraviFX glossary defines premium and discount so you can follow any reading that mentions them, and every term in an analysis links to its definition. The same idea sits inside Premium's extended analysis: each target must be at least 1.5 times the risk from entry, and when price at market is too far from the level that invalidates the idea, the plan uses a pullback entry closer to that level instead of shrinking the stop. The decision stays with you.

Related terms

• Market structure: The sequence of swing highs and lows a market prints: rising is bullish, falling is bearish, neither is a range.
• Break of Structure (BOS): A candle close beyond the last swing high or low in the direction of the trend. It signals continuation.
• Change of Character (CHoCH): The first break against the trend: an uptrend closing below its last higher low, or a downtrend above its last lower high.
• Market Structure Shift (MSS): The confirmed flip that can follow a CHoCH: a failed swing in the old direction, then a close beyond the next swing.
• Swing high / swing low: A candle whose high is above its neighbours, or whose low is below them. The pivots every structure reading is measured from.
• Higher highs / higher lows: The four swing labels (HH, HL, LH, LL) and what each combination says: uptrend, downtrend or range.
• Range / consolidation: Price moving between a ceiling and a floor with no new highs or lows beyond them. A reason to wait, or to trade the edges.
• Retest: Price coming back to a level it has just closed beyond, to see whether the level now holds from the other side.
• Liquidity: Resting orders, mostly stop losses, that pool just beyond obvious highs, lows and round numbers. Price is often drawn toward them.
• Liquidity sweep / stop hunt: A push past an obvious high or low that triggers the stops there, then closes back inside. A close beyond is a breakout.
• Buy-side / sell-side liquidity: Buy orders resting above price (BSL) and sell orders resting below it (SSL). The pools a move is likely to travel toward.
• Equal highs / equal lows: Two or more highs or lows at nearly the same price. A flat edge that collects stops, so a common sweep target.
• Order block (OB): The last opposing candle before a strong move away. A zone price may return to, with the stop just beyond it.
• Fair Value Gap (FVG): A three-candle gap where candle 1's high and candle 3's low don't overlap. Traded through fast, so often revisited.
• Breaker block: A failed order block that price closes through, then returns to from the other side, where it can act the opposite way.
• Mitigation block: A failed order block after a swing that fell short. Price breaks it, then returns from the other side as trapped traders exit.
• Supply / demand zone: The base a sharp move left from: demand below price, supply above. The first return to a fresh zone usually counts most.
• Optimal Trade Entry (OTE): The 62–79% pullback of the last impulse leg. A deep entry that keeps the stop close and the target far.
• Entry: The price a trade opens at: market, limit or stop. With the stop and target fixed, it sets the risk and the reward.
• Stop loss: An order that closes the trade at a set price to cap the loss. It goes where the idea is proven wrong, plus a buffer.

See every term in the trading glossary.