Smart money wants to buy cheap and sell expensive. Premium and discount turns that into a simple rule: split the current range in half, and only look for buys in the lower half and sells in the upper half.
The dealing range
Start with the current dealing range: from the swing low to the swing high of the most recent leg on the timeframe you're trading (the external structure from Module 3). Draw a Fibonacci tool from one to the other and look at the 50% level.
- Premium: above 50%. Price is relatively expensive. In a downtrend, this is where you look to sell.
- Discount: below 50%. Price is relatively cheap. In an uptrend, this is where you look to buy.
- Equilibrium: the 50% level itself, where price is fairly valued.
Why it helps
Premium and discount is a filter. A bullish order block in premium means you'd be buying the expensive half of the range, with a worse stop and a smaller reward. The same block in discount gives better location and a better risk-to-reward. Most SMC traders only take zones on the correct side of 50%.
Worked example
EUR/USD's latest leg runs from 1.0800 (low) to 1.0900 (high). Equilibrium = 1.0850.
In an uptrend, look for buys below 1.0850. A bullish order block at 1.0832–1.0840 is in discount; one at 1.0868–1.0875 is in premium and should be skipped.
| Bias | Look for entries in | Avoid | Typical target |
|---|---|---|---|
| Bullish | Discount (below 50%) | Buying in premium | The range high and the buy-side liquidity above it |
| Bearish | Premium (above 50%) | Selling in discount | The range low and the sell-side liquidity below it |
Key takeaways
- Split the current dealing range at 50%: above is premium, below is discount.
- In an uptrend, look for buys in discount; in a downtrend, sells in premium.
- Zones on the wrong side of 50% give worse location and risk-to-reward.
- Redraw the range after every break of structure.