Premium and discount: never buy expensive or sell cheap
Smart money does not buy at the top of a range or sell at the bottom; it buys cheap and sells dear. Premium and discount turn that idea into a line you can draw. Take any clear swing high to swing low, mark the midpoint, and you instantly know whether the current price is expensive or cheap, and therefore whether you should even be looking to buy or to sell.
The dealing range
A dealing range is simply the span between a clear swing high and the swing low it came from. Mark those two points and draw the midpoint, the equilibrium, at 50%. That single line divides the range into a premium half above and a discount half below. Everything in this module is about which half price is in, because that decides which direction you are allowed to trade.
Premium: where you look to sell
When price is in the premium half, above equilibrium, it is expensive, and you only look for shorts. Buying here means buying into the part of the range where smart money is distributing, which is why so many late longs get trapped near the top. If price is in premium and you feel the urge to buy a breakout, that urge is the signal to wait, not to click.
Discount: where you look to buy
In the discount half, below equilibrium, price is cheap, and you only look for longs. This is where smart money accumulates, so your buys are aligned with the orders that will drive price back up. The discipline is symmetrical with premium: no shorts in discount, no longs in premium. Half of trading well is simply refusing the trades that sit on the wrong side of equilibrium.
The optimal trade entry
Discount and premium can be refined. The optimal trade entry (OTE) is the 62% to 79% retracement of the last impulse leg, the deep-discount pocket for a long or deep-premium pocket for a short. Entering in the OTE puts you as close to the origin of the move as the method allows, which means the smallest stop and the largest reward. Combine OTE with an order block or gap sitting in the same pocket for the cleanest entries.
Buying in discount
A full long reads like this: price sweeps liquidity in the discount half, shifts structure up, and you enter from an order block or gap in that cheap zone, targeting the premium half where sell-side liquidity rests. You are buying where it is cheap and selling where it is dear, with structure and liquidity confirming the turn. That is the entire bullish playbook in one sentence.
Selling in premium
The short is the mirror. Price sweeps liquidity in the premium half, shifts structure down, and you enter from supply in that expensive zone, targeting the discount half below. The same three ingredients, liquidity, a structure shift, and a premium or discount location, appear in every setup in this course. Premium and discount is the filter that keeps you on the right side of them.
Which range, which timeframe
The catch is choosing the right range. Draw the dealing range on the timeframe you take bias from, then execute on a lower one. A level that is a discount on H1 might be a premium on M5, so define your range first and stay consistent. When higher and lower timeframe ranges disagree, the higher timeframe wins the bias and the lower one only times the entry.
Put it on the chart
This is the fastest habit to build. On the live XAUUSD chart, take the most recent clean swing high and low, drop the 50% line, and ask one question before any trade: is price in premium or discount? If the answer does not match the direction you wanted to trade, you have just saved yourself a bad entry. The next module zooms out to combine ranges across several timeframes at once.
FAQ
What are premium and discount in SMC?
They are the two halves of a dealing range split at its 50% midpoint, the equilibrium. Above the midpoint is premium, where price is expensive and you look to sell; below it is discount, where price is cheap and you look to buy.
How do I find the equilibrium?
Take a clear swing high and the swing low it moved from, and mark the 50% level between them. That midpoint is the equilibrium, and it divides the range into the premium and discount zones.
What is the optimal trade entry?
The 62% to 79% retracement of the last impulse leg, the deepest part of discount for a long or premium for a short. Entering there puts you closest to the move's origin, giving the smallest stop and the largest reward-to-risk.
Can I buy in a premium zone?
In SMC the discipline is no: you buy only in discount and sell only in premium. Buying in premium means buying where smart money distributes, which is where late longs get trapped near the top of the range.
Which timeframe should I draw the range on?
Draw it on the timeframe you take your bias from, then execute on a lower one. The same price can be a discount on a higher timeframe and a premium on a lower one, so define the range first and let the higher timeframe set the bias.