Premium vs Discount Zones: Identifying High-Probability SMC Entry Points ! Part 4 Article 1

 

Market Pricing Mastery Using Fibonacci Part 4 Article 1

In the world of Smart Money Concepts (SMC), understanding market structure (BOS) is only half the battle. The real secret lies in knowing where to execute. As professional traders, we must always aim to buy at a "Discount" and sell at a "Premium"—just like successful banks and institutions.

1. What are Premium and Discount Zones?

When the market establishes a new range (between a Swing High and a Swing Low), we divide that range into two distinct pricing areas:

• Discount Zone: The bottom 50% of the range. This is where the price is considered "cheap." In a bullish trend, we only look for BUY setups here.

• Premium Zone: The top 50% of the range. This is where the price is considered "expensive." In a bearish trend, we only look for SELL setups here.

• Equilibrium: The exact 50% level, representing the "Fair Market Value."

2. Using Fibonacci as a Mapping Tool

In SMC, we don't use the Fibonacci tool for traditional retracements. Instead, we use it to define our "Tradeable Range":

• 0.0 Level: Swing Low (for Bullish)

• 0.5 Level: Equilibrium (Fair Price)

• 1.0 Level: Swing High (for Bullish)

The Golden Rule: Never Buy in the Premium Zone. Never Sell in the Discount Zone.

3. Extreme Mitigation Logic

Based on your bot's advanced logic, the highest probability trades are found at the Extreme ends of these zones:

• Bullish Scenario: After a BOS, we wait for the price to return below the 0.5 Equilibrium level. The bot specifically targets the "Unmitigated Order Flow" or "Extreme Order Block" located deep within the Discount Zone.

• Bearish Scenario: After a downside BOS, we ignore any sell signals below the 0.5 level. We wait for the price to rally into the Premium Zone to tap into unmitigated supply.

4. Bot Execution & Filter

The SMC Extreme V2 Bot applies this logic automatically:

1. Range Detection: It identifies the 15M Swing High/Low.

2. Pricing Filter: It calculates the 50% mark. If a 3M entry signal appears in the "wrong" zone, the bot rejects it.

3. Extreme Priority: It scans from the absolute Extreme (Discount/Premium) upwards/downwards to ensure you get the best possible Risk-to-Reward ratio.

Summary

Premium and Discount zones act as a filter to keep you on the right side of the market. Smart Money lures retail traders into buying at Premium prices before crashing the market. By using this logic, your bot ensures you are always trading alongside the institutions.