Premium & Discount
Deciding whether price is expensive or cheap
Splitting the range in half
Take a defined move from its low to its high and draw a line at the midpoint. Everything above that line is premium, meaning relatively expensive. Everything below it is discount, meaning relatively cheap. The midpoint itself is called equilibrium.
Premium and discount
Premium: expensive, look for sells
Discount: cheap, look for buys
The low of the range being measured.
The high of the range. The dashed line halfway between this and point 1 is equilibrium, the 50% level.
Price returns into discount. This is where a buyer following this method would look for an entry, rather than buying near the high.
Everything depends on which low and high you measure between. A different range moves the midpoint, which can flip the same price from discount to premium.
The rule that follows is simple: look for buys in discount and sells in premium. Buying in premium means paying an above-average price for the range you have identified, which gives a worse entry and a wider stop for the same target.
Choosing the range matters most
The entire method depends on which swing low and swing high you measure between, and that choice is where most of the disagreement between traders comes from. A different range produces a different midpoint, which can flip the same price from discount to premium.
The usual approach is to use the most recent significant structural move on the timeframe you are trading, and to keep that definition consistent rather than adjusting it until the current price falls where you would like it to.
The deeper retracement zone
Within discount, many traders pay particular attention to the area between roughly 62% and 79% of the retracement, treating it as the preferred entry region rather than anywhere below the midpoint.
The reasoning is that this zone offers a better price without requiring a full return to the origin, which balances entry quality against the risk of the move continuing without you. Whether this specific band outperforms simply using the midpoint is exactly the kind of question a journal can answer over enough trades.
Why it improves risk to reward mechanically
This concept is useful even independently of any theory about market behaviour, because it does something arithmetically real. Entering closer to the extreme of a range shortens the distance to your invalidation and lengthens the distance to your target.
The same trade idea, entered at equilibrium instead of in deep discount, might offer a reward to risk of 1.5 rather than 3. Nothing about the analysis changed. Only the entry price did, and that alone can decide whether a strategy is profitable across many trades.
The same idea at two entry prices
A range runs from a low of 1.0800 to a high of 1.0900, so equilibrium sits at 1.0850. Both traders are bullish, both use a stop at 1.0790 below the low, and both target 1.0900.
Trader A buys at equilibrium, 1.0850. Risk is 60 pips, reward is 50 pips, a ratio of 0.8:1. This loses money over time even at a 50% win rate.
Trader B waits for discount and buys at 1.0820. Risk is 30 pips, reward is 80 pips, a ratio of 2.7:1. Identical analysis, identical stop level, profitable at barely a 30% win rate.
Waiting for a discount entry means some moves will run without you. That is the intended trade-off, and abandoning it because of a few missed opportunities usually produces worse average entries across everything that follows.