Premium and discount
Above the middle of a range is expensive, below it is cheap. Buying makes sense in the cheap half.
Premium and discount — what it is?
Premium is the upper half of a range, discount the lower half. The line between them is the 0.5 level, also known as equilibrium.
The logic is straightforward: it is better to buy in discount and sell in premium. Buying in the upper half of a range means a worse price and a wider stop.
The notion is relative. The same price can be premium for the daily range and discount for the weekly one — which is why you always state which range you mean.
Premium and discount — how it is built?
Take the range from a significant low to a significant high of the current structure, then divide it with the quartile grid. After that the rule is simple: look for longs below 0.5 and shorts above it.
Premium and discount — common mistakes
Judging premium and discount by eye, without marking the range.
Stretching the range to an arbitrary length until current price lands in the half you want.
Buying in premium and explaining it away with the strength of the trend.
Forgetting to recalculate the range after a break of structure.
Related to
Glossary
- premium
- the upper half of the range. The zone where selling is better.
- range
- movement inside a horizontal corridor with no clear direction.
- discount
- the lower half of the range. The zone where buying is better.
- equilibrium
- the middle of the range, the 0.5 level.
- low
- the lowest price of the period.
- high
- the highest price of the period.