Premium and discount

Take a low and a high. Mark the halfway point. Price above it is in premium; price below it is in discount; the midpoint is equilibrium. That is the whole construction, and it is a retracement measurement under a different name — the 50% level is the 50% level whether you arrived at it through Fibonacci, through a midpoint, or by dividing two numbers.

The stated purpose is straightforward: if you intend to buy, buying in the lower half of the range you have identified costs less and puts your stop closer to the low. If you intend to sell, the mirror. There is nothing mystical in that, and the arithmetic part of it is simply true.

  swing low   2290.0
  swing high  2350.0

  equilibrium 2320.0        (the 50% level)
  discount    2290 .. 2320
  premium     2320 .. 2350

  buy at 2302 -> stop below 2290 is 12 points away
  buy at 2338 -> the same stop is 48 points away

The range is the whole decision

Everything downstream depends on which low and which high you used, and a chart offers dozens of both. Change the range and premium becomes discount for the same price. This is the part worth being honest about: the framework does not identify the range for you, and choosing it after you already have a directional opinion is how it stops being a constraint at all.

• Which swings. The most recent structure leg, the session's range, the prior day, the week — all defensible, all different.
• Which timeframe. A price in discount on the daily can sit in premium on the hourly at the same moment.
• When it resets. A new high extends the range; whether you redraw immediately, on a close, or on a structure event changes the answer.
• How deep counts. Some traders use the lower half; some insist on the 61.8–79% band, often called optimal trade entry; some use the lower third.

What improves, and what does not

Entering lower in a range for a long reliably changes one thing: the distance to a stop beneath the range low, and therefore the reward-to-risk ratio of a target at the high. That is arithmetic, and it holds regardless of whether anything else about the framework is sound. The risk/reward calculator will show the break-even win rate the resulting ratio needs.

What does not automatically follow is that you will be filled, or that the fill rate leaves the ratio worth having. Waiting for a deeper retracement means some trades never trigger, and the ones that never trigger are invisible in a record that only contains executions. A better ratio on fewer trades and a worse ratio on more can produce the same expectancy, and only your own count can say which side you are on.

Testing it

1. 1Write the range-selection rule down as a playbook rule — which swings, which timeframe, when it redraws — so each trade records the version used.
2. 2Log the setups that never filled because price did not retrace far enough. Without them the sample is only the trades that got their retracement.
3. 3Compare expectancy in R for entries in the lower half against the upper half of the same ranges, with both counts shown.
4. 4Check separately whether the improvement is coming from the ratio or from the hit rate; they move in opposite directions and reporting one number hides it.

Sage's replay makes the second step practical — the range redraws as candles arrive, so a setup that did not fill is recorded as not filled rather than forgotten. That is the same discipline the backtesting guide describes for any entry rule that involves waiting.

Where traders disagree

This vocabulary is not standardised. These are the live disagreements — worth knowing about before comparing your results with anyone else’s.

• ?Which swing low and high define the range — the choice decides whether a given price is premium or discount, and a chart offers many defensible pairs.
• ?Whether the useful threshold is the 50% midpoint, the 61.8–79% band sometimes called optimal trade entry, or something else entirely.
• ?Whether a range should redraw on a new extreme immediately, on a close beyond it, or only on a structure event.
• ?Whether the framework adds anything beyond the arithmetic fact that entering closer to your stop improves the ratio.

Test it on your own trades

Whether this holds is a question about your record, not about the term. These are the steps that make the answer trustworthy.

1. 1Write the range-selection rule down before testing, including timeframe and redraw conditions.
2. 2Record setups that never filled; a rule that waits is judged partly by what it misses.
3. 3Compare expectancy in R between lower-half and upper-half entries on the same ranges, with both sample sizes shown.
4. 4Separate the effect on reward-to-risk from the effect on hit rate — they usually move in opposite directions.
5. 5Check whether your ranges were chosen before or after the directional opinion; if the plan cannot tell you, the rule is not written tightly enough.

You will also need

• Market structure shiftA reading of price as a sequence of swing highs and lows, where a break beyond the last swing either continues the sequence (BOS) or reverses it (CHoCH).
• Fair value gap (FVG)A range of price left behind by three consecutive candles whose first and third wicks do not overlap — the market passed through it quickly and in one direction.
• Liquidity sweepPrice trading beyond an obvious swing high or low — often a level with equal highs or lows — and then returning back through it.