Premium and discount zones explained, and how to use them
Premium and discount are the smart-money names for the two halves of the current swing range. Above its midpoint is premium; below it is discount. This guide covers which range the app measures, where the midpoint comes from, and why the indicator is a filter that sits beside another condition rather than a trigger on its own.
What premium and discount are
Take the last confirmed swing high and the last confirmed swing low. The midpoint between them is called equilibrium. A close above it is in the premium half of the range; a close below it is in the discount half. That is the whole indicator.
The vocabulary comes from the smart-money school, which looks for longs in discount and shorts in premium rather than wherever price happens to be. Whether that sorting changes anything on your market is a claim to test, and not something this guide asserts. What the app does is say, on every bar, which half price closed in.
The midpoint is the 50% level of the same two swings Auto Fib Retracement measures from, computed by the same code, so the two can never draw different swings on one chart. A swing high is a bar whose high stands above a set number of bars on either side; a swing low is the mirror. Each is confirmed only once that many bars have closed after it, so the range updates a few bars after a new swing, and holds steady in between.
Premium and discount settings
- Swing strength (bars). How many bars on each side a high has to stand above, or a low below, to count as a swing: five by default, from 2 to 20. The range runs from the last such high to the last such low, so a larger number finds fewer, more prominent swings and changes the range less often.
That is the only setting. The midpoint is the one level of a range that does not depend on which way the last leg ran. Unlike a retracement, there is no "which end is 0%" to get wrong.
How to use premium and discount in a strategy
These are the comparisons SixOne8 offers, in the builder's own words. Both are states.
- Price in the premium half. The bar closed above the midpoint between the last confirmed swing high and swing low. True for as long as price stays above it.
- Price in the discount half. The bar closed below the midpoint. True for as long as price stays below it.
Premium / Discount(5-bar swings) on 4h · price in the discount half
Read it as a sentence: on the 4-hour chart, the last close was below the middle of the range between the most recent confirmed swing high and swing low. A close exactly on the midpoint is in neither half.
A filter, not a trigger
Because both comparisons stay true for as long as price stays on its side, they are true on a large share of bars, often half of them. On its own, that makes a poor trigger: a strategy would be satisfied for long stretches and an alert would fire only when it first became so. Paired with a moment, it becomes a filter. An example is a bullish break of structure on the 15-minute chart, while price is in the discount half on the 4-hour chart. There the moment decides when, and the zone decides whether that moment counts.
The chart in the builder shades the two halves directly: premium above the midpoint, discount below. Each range is drawn from the bar it became known on, so the shading never shows a range before the swings that make it were confirmed.
Does premium and discount work on your market?
Run an entry check on the strategy with and without the zone condition. It will tell you whether, on the market you care about, the moments it fired moved any differently from a random moment over the history tested. That is a fact about the past on that market, and it is the only kind of fact a test here produces.