Lesson 16 of 20 · 10 min
Premium and Discount
Step 1
What it is
Take a clear swing from low to high and split it in half. The upper half is called premium, because price is expensive compared with that range. The lower half is called discount. The midpoint is called equilibrium.
The idea is simple: try to buy in the cheaper half and sell in the more expensive half. The 50% line is only arithmetic. The market does not have to respect it.
Traders use it because it forces them to think about location, and it shows something most people miss. With a stop past the swing and a target at the far end, 3:1 is only possible from the far quarter of the range. Being merely in discount is not enough.
Step 2
See it on a chart
One swing, split at 50%, with the part of the range where 3:1 is possible marked.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 3
The exact rules
What must be true before entry
- A clear swing with an obvious high and low.
- Price has returned into the far quarter of that swing.
- You can see a reason for the level to hold, such as a sweep or a shift. Location alone is not a reason.
What volume should show
Where to enter
Where the hard stop goes
Where the target goes
What invalidates the idea
- Price closes past the swing that defines the range.
- A new swing forms, which means you need to redraw the range.
When not to take it
- Price is near the 50% line, so 3:1 is not possible.
- You have to choose a different swing to make the numbers work.
- Major news is due soon, or you would be trading outside your planned hours.
- You have just taken a loss and feel the need to win it back.
Step 4
Your turn: plan the trade
Price has climbed back into the upper part of a falling swing. Mark your plan, and check the reward-to-risk before you submit it.
This setup is a short. Look at the candles and the volume. Choose a line below, then tap the chart to place it. You can also drag its label or type a price.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 5
The trap: cheap does not mean safe
Buying something because it has fallen feels like getting a bargain. Falling prices can keep falling. If you notice yourself adding to a loser because it is now even cheaper, close the platform. That is a sign to review your plan, not a better entry.
Read about routineStep 6