Discount & Premium - ICT Concepts
Introduction
The video introduces the topics of discount and premium in trading, emphasizing the need for a good understanding of buy side and sell side liquidity. The importance of using discount and premium to assess risk-reward ratios is also highlighted.
Understanding Discount and Premium
- A swing high to a swing low is used to identify the most prominent range in a given area.
- The equilibrium point of the range is determined by the 0.5 Fibonacci level.
- Anything above the 0.5 Fibonacci level is considered at a premium, while anything below it is considered at a discount.
- Multiple ranges can exist within a price section, leading to potential confusion.
Importance of Discount and Premium
Discount and premium help determine where risk-to-reward ratios are more favorable. Entering positions closer to discount or premium levels can result in higher reward potential.
- Entering a long position at the equilibrium point with stop loss at the low and target at the high yields a risk-to-reward ratio of one.
- Moving deeper into discount increases the favorability of risk-to-reward ratios for long positions.
- Similarly, entering a short position at the equilibrium point with stop loss at the high and target at the low yields a risk-to-reward ratio of one.
- Moving deeper into premium increases the favorability of risk-to-reward ratios for short positions.
Example 1: NASDAQ Daily Chart
An example using NASDAQ on daily chart demonstrates how to identify ranges, track them, and look for discount or premium opportunities.
- Identify swing lows and highs to mark out ranges.
- Track expanding ranges as price moves higher.
- Look for discount opportunities when seeking long positions.
Example 2: Dollar Index (DXY) Daily Chart
Another example using the Dollar Index (DXY) on daily chart shows interactions between equilibrium ranges and the search for discount or premium opportunities.
- Identify swing lows and highs to mark out ranges.
- Look for discount opportunities when seeking long positions.
- Track new ranges as they form and continue searching for discount or premium opportunities.
Example 3: Pound Dollar Daily Chart
The final example focuses on the Pound Dollar pair on a daily chart, highlighting the filling of a fair value gap and the identification of an aggressive displacement range.
- Fill a fair value gap and identify a new high.
- Look for discount or premium opportunities based on previous ranges.
- Track new ranges and continue searching for discount or premium opportunities.
New Section
In this section, the speaker discusses the importance of looking for longs at a discount and identifies key setups to consider.
Looking for Longs at a Discount
- The speaker emphasizes the need for a raid on the previous day's low or some sort of setup.
- A fair value gap is identified above, indicating potential price movement.
- Price reaching back up is desired on the next day.
Analyzing Price Action
- The 15-minute chart is used to analyze price action.
- The Asia range high and low are marked out.
- Sweeping the Asia low and filling the fair value cap creates another discount in premium range.
OTE Entry and Target
- An OTE entry is marked out as a potential setup.
- The target is set at the daily fair value gap.
- By entering at an OTE, risk reward ratio improves compared to an equilibrium entry.
Respect for Key Levels
- Candle closes above key levels are observed, indicating respect for those levels.
Conclusion
The speaker provides insights into finding long opportunities at a discount. They emphasize the importance of identifying raids on previous day lows or setups. Analyzing price action and respecting key levels play crucial roles in determining potential entries.