Premium and discount are a way of valuing price within a defined range by its 50% midpoint (the “equilibrium”): the half above the midpoint is the premium zone, considered expensive, and the half below is the discount zone, considered cheap. The framework, common in ICT and smart-money trading, says to seek longs in discount and shorts in premium for better risk-reward.
The range is anchored to a chosen swing — from a swing low to a swing high — and equilibrium is simply its 50% level, equivalent to the 50% Fibonacci retracement. Combined with retracement zones it underpins ideas like optimal trade entry, where a continuation long is sought only after price pulls back into discount below equilibrium, ideally into a deeper Fibonacci pocket.
The concept is mechanically simple but entirely dependent on which swing defines the range — different anchors move equilibrium and flip a price between premium and discount — so it is a relative, discretionary lens, not an absolute valuation. As with related ICT tools, definitions vary, and a specific premium/discount rule must fix its anchoring before it can be tested.