Traders often look for ways to find better entry points for their trades. ICT premium and discount zones offer a simple way to decide when to buy or sell based on whether the price trades above or below a fair value level. By learning how to spot these zones, you can start to approach your trades with more confidence and clear logic. You want to buy at cheaper prices and sell at more expensive prices, and these zones help you do exactly that.
What Premium and Discount Really Mean
Think about buying a car with a fair market value of $120,000. If someone tries to sell that car for more than $120,000, the extra amount above the fair value stands as a premium. If they sell the car for less than $120,000, the price stands at a discount. In trading, the same idea applies. When you look at a price chart, the area above a fair value level shows premium prices, and the area below that level shows discount prices.
This makes sense from a trader’s perspective. You would rather buy an asset when the price sits at a discount and sell it when the price trades at a premium. This approach helps you avoid chasing expensive trades and instead focus on getting the best possible deal.
How to Use Fibonacci for ICT Premium and Discount Zones
The 50% Fibonacci retracement line often helps traders find the fair value level. Traders take a significant price swing and place the Fibonacci retracement tool on it. The 50% line in the middle of that price swing acts like a fair value line. Prices above this line show premium levels, while prices below this line show discount levels.
You simply measure from a swing high to a swing low in a downtrend or from a swing low to a swing high in an uptrend. The 50% line divides the chart into two halves: the upper half for premium and the lower half for discount. This gives you a quick way to know if you should consider selling at the top half or buying in the bottom half.
Identifying the ICT Premium Zone in a Bearish Trend
When the market moves down, traders often look for premium areas to place sell trades. Start at a swing high and draw your Fibonacci tool down to a swing low. Look at the 50% line. Any price zone above that line, once the market trades there, shows a premium zone. Traders often wait for the price to return to this premium area before placing a sell, because selling at a premium increases the chance of a better profit margin. Combine this location with a strong confirmation signal, such as a market structure shift, to improve your odds.
Identifying the ICT Discount Zone in a Bullish Trend
When the market moves up, traders usually look for discount areas to place buy trades. Start at a swing low and draw your Fibonacci tool up to a swing high. Check the 50% line. Any price zone below that line shows a discount zone. Traders often wait for the price to return to this discount area before buying, because buying at a discount can improve the chance of entering at a good price. Watch for a confirmation signal before actually pulling the trigger, so you increase the likelihood of a successful trade.
Conclusion
ICT premium and discount zones make it easier for traders to find favorable points on a chart to buy or sell. By focusing on areas above or below the 50% Fibonacci level, you can quickly see where the market may offer a better deal. This approach helps traders follow a logical plan: buy low in discount areas and sell high in premium areas. Whether you are just starting or have traded for years, using these zones can help you trade with more discipline and skill.
FAQs:
Look for a recent market swing, then place the Fibonacci retracement tool from one end of the swing to the other. The 50% line divides the chart into premium and discount halves. The zone above the 50% line shows premium prices, and the zone below it shows discount prices.
The 50% line often represents a fair value level for many traders. When price sits above it, the market trades at a premium. When price sits below it, the market trades at a discount. This line gives you a simple and clear benchmark for measuring price fairness.
Yes, these concepts work in many markets, including stocks, forex, and commodities. The idea of buying at a discount and selling at a premium works no matter what instrument you trade, because all markets tend to move in swings.
Yes, many traders wait for a confirmation signal before acting on premium and discount zones. A market structure shift or a well-tested pattern can help confirm that the market is ready to move in your chosen direction. This step can improve your overall trading odds.
Premium and discount zones force you to think about value and price fairness. Instead of jumping into trades, you learn to wait for good prices. This disciplined approach often leads to smarter entries, better risk management, and an improved chance of long-term success.