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PREMIUM AND DISCOUNT ZONES IN CRYPTO TRADING: HOW TO FIND HIGH-VALUE ENTRY POINTS
Premium and Discount Zones in Crypto Trading: How to Find High-Value Entry Points
"Buy low, sell high" is one of the basic principles of trading. But in practice, the main question is different: how do you determine where price is actually considered cheap and where it is expensive?
Looking at price in isolation is not enough. The same level may appear high in one market context and low in another. That is why it is important to consider where price is positioned relative to the current market structure and trading range.
This is where premium and discount zones come in.
They allow traders to divide a range into areas where price is relatively high or low and use this information when looking for potential entry points.
Table of Contents
The Basic Concept: Equilibrium and Two Zones
How to Plot Premium and Discount Zones on a Chart
Premium and Discount in a Trending Market
Optimal Trade Entry: OTE
Premium and Discount in a Sideways Range
Using Premium and Discount on a Funded Account: Why Context Matters as Much as the Setup
Key Takeaways
The Basic Concept: Equilibrium and Two Zones
The concept is based on a trading range between a significant swing low and swing high.
The midpoint of this range – the 50% level – is called equilibrium and divides the range into two parts.
Price above the 50% level is in the premium zone.
Relative to the selected range, the asset is trading at a higher price. In a downtrend, this is where traders primarily look for short opportunities, while longs become less attractive.
Price below the 50% level is in the discount zone.
Relative to the range, the asset is trading at a lower price. In an uptrend, this area is considered when looking for longs.
The basic principle is simple: buy in discount and sell at a premium. However, these zones are not entry signals by themselves. They should be used together with market direction, price structure, and other confirmations.
How to Plot Premium and Discount Zones on a Chart
To mark the zones, first identify the current trading range:
1
Find the significant swing high and swing low that define the range you are analyzing.
2
Calculate the midpoint of the range: (swing high + swing low) / 2.
3
The area above 50% is the premium zone, while the area below 50% is the discount zone.
You can simplify the process by using the Fibonacci Retracement tool. When drawn between the swing low and swing high, the 0.5 level marks the equilibrium of the range.
However, it is important not to automatically associate the 0.618, 0.705, 0.382, and 0.236 levels with "premium" or "discount." Their position depends on the direction in which the Fibonacci tool is drawn and the platform settings.
For the basic definition of premium and discount zones, the 50% level is enough: one half of the range is premium, while the other is discount.
Which Swing High and Swing Low Should You Use?
To plot premium and discount zones correctly, it is important to choose the right range boundaries. The main reference points are the latest significant swing high and swing low that define the current structure on your chosen timeframe.
The scale of these points depends on your working timeframe. On a 4-hour chart, they may be major swings formed over several trading sessions. On a 1-hour chart, they may represent intermediate moves within a larger structure. On a 15-minute chart, they may be local intraday swings.
The key is that the high and low should be clearly defined structural points, rather than minor fluctuations within a move. The less significant the selected range is, the less useful its division into premium and discount becomes.
Premium and Discount in a Trending Market
The concept is particularly useful when trading with the trend. It helps determine which part of the current range may offer a better entry after a pullback instead of entering after the move has already happened.
In an Uptrend: Looking for Longs in Discount
If the market is forming higher highs and higher lows, and a break of structure (BOS) confirms the continuation of the uptrend, the scenario may look like this:
1
Price breaks above the previous significant high and forms a new swing high.
2
A correction begins after the impulse.
3
Price moves below the 50% level of the latest bullish range and enters the discount zone.
4
In this area, the trader looks for additional confirmation for a long entry.
Importantly, price entering discount is not a buy signal by itself. It is simply an area where a potential long becomes more attractive based on the position of price within the current range.
Additional confirmation may come from the discount zone overlapping with other structural elements, such as an order block or Fair Value Gap (FVG).
This combination brings several independent factors into the same area, but it does not guarantee a reversal or a profitable trade.
In a Downtrend: Looking for Shorts in Premium
The opposite logic applies in a downtrend. If the market is forming lower highs and lower lows, and a bearish BOS confirms continuation, the trader waits for an upward correction after a new swing low is formed.
When price moves above the 50% level of the latest bearish range and enters the premium zone, traders can look for confirmation for a short entry.
Additional confirmation may come from the premium zone overlapping with a bearish order block, FVG, or another significant structural level. Just as with discount, price being in premium is not a sell signal by itself.
Why Price Position Within the Range Matters
One common mistake is entering a trade simply because the price is already moving strongly in the desired direction.
For example, in an uptrend, a trader may see a strong impulse and enter a long when price is already deep in the premium zone. As a result, the potential for further movement becomes smaller, while the probability of a correction toward equilibrium or discount increases.
That is why the same long setup can have a completely different context depending on the entry point. Buying in discount means entering in the lower half of the current range, while buying in premium means entering in the upper half.
This does not mean the price will necessarily reverse in premium or rise from discount. The zones only show where price is positioned within the range; an entry decision requires additional confirmation.
Optimal Trade Entry: OTE
ICT concepts use a narrower area within a retracement known as Optimal Trade Entry (OTE). It helps traders identify a potential entry area after a sufficiently deep price pullback.
In the classic framework, OTE is generally considered to be around the 0.62–0.79 Fibonacci levels, with 0.705 often used as a central reference point.
In an uptrend, the idea is to wait for a correction into this area and then look for confirmation that the upward move may continue. In a downtrend, the opposite logic applies.
A deeper correction may also allow the Stop Loss to be placed closer to the point where the trading idea is invalidated, potentially improving the risk-to-reward ratio.
However, price reaching the OTE zone does not guarantee a reversal.
Combining OTE with Other Smart Money Concepts
OTE becomes more useful when other structural elements are located in the same area. For example:
Order block
Fair Value Gap (FVG)
Previous structural level
Liquidity zone
Suppose that in an uptrend, price retraces into the OTE zone, where a bullish order block and an unfilled FVG are also located. In this case, several elements of the analysis point to the same area.
However, the alignment of multiple factors is not a reason to automatically increase risk or position size.
Risk is better defined in advance as part of the trading system rather than adjusted simply because a particular setup looks especially convincing.
Premium and Discount in a Sideways Range
The concept can also be applied when the market is trading in a sideways range. In this case, the upper boundary acts as the swing high, the lower boundary as the swing low, and the 50% level divides the range into premium and discount.
The logic changes:
In the lower part of the range, a trader may look for confirmation for a long targeting equilibrium or the upper boundary.
In the upper part, a trader may look for confirmation for a short targeting equilibrium or the lower boundary.
The main risk with this approach is a breakout from the range. If the lower boundary is broken and market structure confirms a move lower, the previous discount zone is no longer sufficient reason to look for longs.
This is where it becomes important to monitor changes in market structure:
BOS (Break of Structure) – a structural break that usually indicates continuation of the current move.
CHOCH (Change of Character) – an initial signal that the current market structure may be changing.
A structural change may indicate that the previous range is no longer relevant and its premium and discount zones need to be redrawn.
When trading within a range, targets can also be managed in stages. For example, part of the position may be closed near equilibrium, while the remainder can be held for a move toward the opposite boundary.
Using Premium and Discount on a Funded Account: Why Context Matters as Much as the Setup
The same setup can look very different depending on which part of the range it forms in.
For example, a retest of a bullish order block in the discount zone of a higher timeframe aligns with the general logic of looking for longs at a more favorable price. The same order block appearing in the premium zone forms in a less attractive part of the range for a long entry.
The same applies to FVGs, liquidity sweeps, and other Smart Money concepts. In this context, premium and discount are not standalone signals but additional filters for an already identified setup.
Before entering a trade, you can add a simple question to your trading plan: is the potential long in discount and the short in premium relative to the current higher-timeframe range?
If not, it may be worth reassessing the trade and checking whether there is enough other confirmation for the entry.
At the same time, position size and acceptable risk are better defined in advance as part of your system rather than increased or reduced emotionally based on how attractive a particular setup looks.
On a Funded Account, this additional filter can be especially useful: the trader's task is not only to find opportunities, but also to control risk and stay within the account limits.
Key Takeaways
1
The 50% level divides the current range into premium and discount.
It sits halfway between the selected swing high and swing low and is known as equilibrium.
2
Premium is above equilibrium, while discount is below it.
In an uptrend, discount is used to look for potential longs; in a downtrend, premium is used to look for potential shorts.
3
Premium and discount are not entry signals by themselves.
They should be considered together with market direction, structure, liquidity, and other confirmations.
4
OTE helps narrow down the potential entry area after a deep correction.
In ICT methodology, traders look at an area within the retracement, often using Fibonacci levels with 0.705 as one of the key reference points.
5
Order blocks, FVGs, and liquidity sweeps gain additional context through premium and discount.
For longs, it is generally more logical to look for confirmation in the lower part of the current range; for shorts, in the upper part.
6
The logic changes in a sideways market.
Discount can be used to look for a move toward equilibrium or the upper boundary, while premium can be used to look for a move toward equilibrium or the lower boundary. If the range breaks, the zones should be redrawn.
7
On a Funded Account, premium and discount can be used as a final filter before entry.
They help determine whether a setup aligns with the broader structural context without replacing risk management.
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