Discount & Premium - ICT Concepts

TTrades explains how to use discount and premium zones (via the 0.5 Fibonacci equilibrium) to find favorable risk-to-reward entries in ICT-style trading.

Key Takeaways

Use the 0.5 Fib of a swing range to define premium and discount zones.
Buy in discount and sell in premium to improve risk-to-reward.
Ranges are nested and expanding, so track equilibrium as structure evolves.
Combine discount/premium with PD arrays such as fair value gaps and order blocks for entries.

What the video covers

Discount and premium are defined by the 0.5 Fibonacci equilibrium of a swing high-to-low range: below 0.5 is discount, above is premium.
The first step is identifying the most prominent swing high-to-swing low range in the price area.
Ranges are nested: multiple ranges exist within a setup's price section, and equilibrium lines expand and shift as price makes new highs or lows.
Entering longs in discount and shorts in premium yields a more favorable risk-to-reward ratio than entering at equilibrium (which gives 1:1).
Longs should target PD arrays (such as fair value gaps or order blocks) in discount; shorts should target PD arrays in premium.
The NASDAQ daily chart example shows a fair value gap in discount used as a long entry area, with OTE entry offering about 3.43 risk-to-reward versus 1.6 at equilibrium.
The DXY example demonstrates how equilibrium ranges interact across timeframes, with a fair value gap in discount serving as a draw on liquidity.
The video assumes familiarity with buy-side and sell-side liquidity concepts covered in a previous video.

Chapters

How do you find the discount and premium of a price range?

Identify the most prominent swing high-to-swing low range, then draw a Fibonacci from high to low. The 0.5 level is equilibrium; prices below it are discount and above it are premium.

Why prefer entries in discount for longs?

Entering a long in discount gives a better risk-to-reward ratio than at equilibrium, because the stop can sit at the range low while the target at the high offers more reward relative to risk.

What is a PD array and how is it used with discount and premium?

A PD array, such as a fair value gap or order block, is a price delivery area. Longs look for PD arrays in discount and shorts look for them in premium, as these are areas price is expected to reach for.

Full Transcript — Download SRT & Markdown

Speaker A

How's it going everyone? This video is going to be about discount and premium. However, for this video you have to have a good understanding of buy-side and sell-side liquidity, so if you haven't already watched my video on that, it will be linked in the top right corner.

Speaker A

there I will take in this case the gone box or afib and Mark out from the high to the low doing this we can see where our equilibrium rests right here with the 0.5 Fib so this would be the equilibrium of the range anything above the 0.5 FIB is considered at a premium and anything below the 0.5 FIB is considered at a discount so extending this box over to the left we can get a better visualization of where our premium and discount of the range lies it is important to note that there is

Speaker A

The first thing to understand in marking out discount and premium is finding the range, and for that I look for a swing high to a swing low, or essentially the most prominent range in this area. From there, I will take, in this case, the Gon box or AFIB, and mark out from the high to the low. Doing this, we can see where our equilibrium rests, right here with the 0.5 Fib. This would be the equilibrium of the range. Anything above the 0.5 Fib is considered at a premium, and anything below the 0.5 Fib is considered at a discount.

Speaker A

to be using discounted premium is because it shows where risk to reward is more favorable for example if I was to enter a long position right at the equilibrium of the range and put my stop on the low and put my target on the high my wrist reward would be one however the further into discount I get the higher or more favorable my wrist reward becomes the same goes for entering a short position if I was to enter a short position at the equilibrium and put my

Speaker A

So extending this box over to the left, we can get a better visualization of where our premium and discount of the range lies. It is important to note that there is not just one range within a price section. There are multiple ranges within ranges. For example, here we have this range from this move down. However, when we put in a swing low here and move back up, we create another range from this high to this low. There are multiple different ranges within a setup's price section, and it can get kind of confusing, so we'll jump into some examples to explain that.

Speaker A

range well we have a swing low right here price leg up so I'd want to Mark out this I to this low now one thing with ranges is they are expanding so price moves higher we're going to track that with our equilibrium range so as this moves higher we're going to move it higher with it we will continue to do that until a high is put in

Speaker A

However, I first want to discuss why we use discount and premium. The main reason to be using discount and premium is because it shows where risk to reward is more favorable. For example, if I was to enter a long position right at the equilibrium of the range, and put my stop on the low and my target on the high, my risk to reward would be one. However, the further into discount I get, the higher, or more favorable, my risk to reward becomes.

Speaker A

dollar Index or dxy and the interactions between equilibrium ranges so if you notice here we have a move up here and so if we Mark that out from our high to the low that made the new range we have our equilibrium range so with that let's drop down to the Daily Now from here we are looking for long positions or a draw on liquidity for short positions what would we want to look for we would want to look for PD arrays in a discount so looking into our discount

Speaker A

The same goes for entering a short position. If I was to enter a short position at the equilibrium and put my stop on the high and my target on the low, I would have a risk to reward of one. However, as I get deeper into premium, my risk to reward becomes greater. With that being said, if I am looking for a short position, I am looking for PD arrays in a premium to get short. If I'm looking for a long position, I am looking for PD arrays at a discount to get long.

Speaker A

we've broke structure up and then if we Mark out this displacement range or this High to this low we are left with a range that shows premium and discount so just like before if we are looking for long positions I want to look where I want a PD array in a discount well if I look left what do I have I have an order block so letting this continue price reaches into here into a discount and respects the opening price of that order block now we expand higher well what do we have now that we made a

Speaker A

For this first example, we are going to look at NASDAQ on the daily chart. The first thing we want to do is identify a range. We have a swing low right here, and price legs up, so I'd want to mark out this high to this low. Now, one thing with ranges is that they are expanding. So as price moves higher, we're going to track that with our equilibrium range. As this moves higher, we're going to move it higher with it. We will continue to do that until a high is put in.

Speaker A

so marking this out from high to low if price wants to draw back into a discount do we have a PD array in discount for it to reach for we do we have a small little fair value Gap right here going to the next day we get a sweep of Monday and Friday's high right here it closed back in next day model wants us to drop down get a reach for that fair value Gap so now if I'm going to be looking for Longs and a discount I want to see some sort of raid on previous day low or some sort of setup

Speaker A

Now, if this is the high, let's see. Okay, so we put in a swing high there. Now, if we're going to be looking for long positions, what do we want to look for? We want to look for a discount PD array. Do we have one? Yes, we have a fair value gap right here. So if I'm looking for longs, I want to be looking for longs in here. Let's see what happens. We reach into that discount PD array and then move higher from there.

Speaker A

another discount in premium range for this one I will also Mark out an OT go from here if I was looking for a setup I'd be looking for an OTE entry and then a target of that daily fair value Gap and if you notice by entering at a OTE my wrist reward is 3.43 there versus 1.6 at an equilibrium so letting us play out continuing ahead we reach into our OTE and it's important to notice how there are no candle closes below there right it's respecting it okay move higher

Speaker A

For this next example, we are going to look at the dollar index, or DXY, and the interactions between equilibrium ranges. If you notice here, we have a move up here, and so if we mark that out from our high to our low, that made the new range, we have our equilibrium range. With that, let's drop down to the daily. From here, we are looking for long positions or a draw on liquidity for short positions. What would we want to look for? We would want to look for PD arrays in a discount. So looking into our discount here, what do we have? Well, we have a fair value gap here. Letting this play out, let's see where price heads for, and there we go, we reach our discount PD array.

Topics:discount and premiumICT conceptsequilibriumfibonacci 0.5PD arraysfair value gaporder blockNASDAQDXYrisk to reward

Get More with the SozAI App

Transcribe recordings, audio files, and YouTube videos — with AI summaries and speaker detection. 30 minutes free.

App Store Google Play

Or transcribe another YouTube video here →

Free tools: TXT to SRT · SRT Validator · Merge SRT · Subtitle to Text · All tools