ICT Premium and Discount Concept

 

Last Updated on 4 months by ICT Team

In the world of trading, there are various concepts and strategies that traders employ to make informed decisions. One such set of concepts is ict premium and discount, which are taught by ICT (Inner Circle Trader) and can be valuable tools in a trader’s arsenal.

In this blog post, we will delve into the premium and discount concepts, exploring their application in trading and how they can enhance decision-making. Understanding these concepts can help traders refine their entry and exit points, increasing the potential for profitable trades.

Understanding Premium and Discount

Premium and discount are simple concepts that apply to buying and selling things, including in the Forex market. When you buy something at a premium, it means you’re paying more than its fair value. On the other hand, buying something at a discount means you’re getting it at a lower price than its actual value or when it’s on sale.

These concepts can be applied to various products and assets that are traded in a free market, such as fuel, currency pair, or even stocks. In trading, premiums and discounts can be marked on a candlestick chart to determine the premium and discount levels within a specific range or price action.

ICT Premium and Discount Concepts

Premium and Discount are concepts often used in ICT (Inner Circle Trader) trading strategies to identify optimal entry and exit points in the market. These concepts rely on the understanding of market structure and the behavior of institutional traders, also known as Smart Money.

Before we begin, it’s important to note that there is no magic in the Fibonacci tool. What matters most is the narrative – the story that the market is telling.

Only with a clear understanding of the narrative can you use the Fibonacci Tool as a framework for trading.

How to identify Discount Conditions

To identify discount conditions, traders look for a bullish displacement in price. This sudden increase in price indicates smart money entering the market and accumulating it’s position.

Traders then wait for the formation of a swing high as a confirmation of this displacement.

Once price trades below the equilibrium, if the overall narrative is bullish, it sets up buy conditions. Traders look for long setups within these buy conditions, as it increases the probability of a successful trade. These setups are identified when the price returns to discounted conditions, allowing traders to buy at a favorable price.

How to Identify Premium Conditions

Conversely, the same concepts apply to short setups. When the market takes liquidity, forms a swing low, and trades above the equilibrium, traders wait for a specific signature known as the Fair Value Gap (FVG). If the overall bias is bearish, traders can take a short entry, which presents a high probability setup.

It’s important to note that premium and discount concepts should be used as a part of a comprehensive trading strategy. Traders should consider other factors such as market structure, supply and demand zones, and liquidity before making trading decisions. These concepts provide additional insights and can enhance decision-making, but they should not be relied upon as the sole basis for entering or exiting trades.

Fibonacci premium and discount

The above chart of EURUSD explains a blend of the ict premium and discount concepts with fib levels. This will

Common Mistake From Traders

However, many traders make mistakes when using premiums and discounts. They rely too much on them or use them in the wrong situations. Premium and discount are not very effective on shorter time frames unless the price is in a clear range. Some traders only use these concepts without considering other important factors like market structure, supply and demand zones, and liquidity.

One common mistake is relying solely on premiums and discounts as a trading strategy. Another mistake is using them in highly volatile markets where the price is trending strongly. Price may not always follow the expected pattern when it’s in premium or discount, especially in the short to medium term.

Trading Course For Beginners

Remember that premiums and discounts should not be the only basis for making trading decisions. They should be used along with other indicators and analyses. When choosing entry levels, consider using premium and discount as supporting factors, along with the trend and potential profit. This helps filter out low-probability zones and prevents trading in the middle of a range or consolidation.

In conclusion, premiums and discounts can be helpful tools, but they should be used in appropriate market conditions, such as clear consolidations or ranges. By incorporating these concepts into a comprehensive trading strategy and considering other factors, traders can make more informed decisions and improve their chances of success in their trades.