Strategies School / ICT / Smart Money Concepts

Premium, Discount and the OTE Zone

Intermediate · 8 min read

Split a range at 50% and buy cheap, sell expensive. Use the 62 to 79% retracement as a sweet spot.

What it is

Take a swing low to a swing high. The 50% level is the equilibrium. Below it is discount, above it is premium.

The idea: in an uptrend look to buy in discount, and in a downtrend look to sell in premium. Buying at the top of a range gives a poor reward to risk.

The optimal trade entry (OTE) is the 62% to 79% retracement of the move, with 70.5% often used as the middle. It is a zone to watch, not a signal by itself.

How to spot it

1. Draw the Fibonacci tool from swing low to swing high (for longs).
2. Shade 0% to 50% as discount and 50% to 100% as premium.
3. Mark the 62% to 79% area as OTE.
4. Check for overlap with an order block or fair value gap.

Trade plan

• Entry: Inside the OTE zone after a reaction, in the direction of the higher timeframe trend.
• Stop loss: Beyond the swing low (for longs). Below 100% retracement the idea is invalid.
• Target: The previous swing high or higher.

Common mistakes

• Wrong: Buying in premium just because price is moving up. Right: Wait for a pullback into discount.
• Wrong: Using the zone with no trend context. Right: Trade in line with the higher timeframe structure.

Pro tip: If price never retraces to discount, skip the trade. Missing a move is cheaper than chasing it.

Quiz

• In an uptrend, where do you look for buys? Answer: Discount (below 50%). Buying in discount gives a better reward to risk.
• The OTE zone is commonly the retracement from: Answer: 62% to 79%. OTE is usually 62% to 79%, with 70.5% as a common midpoint.
• If price retraces beyond 100% of the swing, the idea is: Answer: Invalid. Beyond the swing origin the structure is broken.

Educational content, not financial advice. Diagrams are illustrations, not real market data.