Premium and discount
Also called equilibrium. What it means, how it looks on a gold (XAUUSD) chart, and the mistake most traders make with it.
Premium and discount: Split any price range at its 50% level. Above it is premium (expensive, where you look to sell); below it is discount (cheap, where you look to buy). The 50% level is equilibrium.
Premium and discount on a gold chart
If gold's swing runs from $4,080 to $4,160, equilibrium is $4,120. In a bullish bias, longs are taken below $4,120; buying at $4,150 means buying in premium, with poor reward for the risk.
How traders use it
Traders draw the range on the timeframe of their bias and only take longs in discount and shorts in premium.
Common mistake
Using the wrong range. The swing must be the one that matters for the current bias, usually from the higher timeframe.
Questions
What does premium and discount mean in trading?
Split any price range at its 50% level. Above it is premium (expensive, where you look to sell); below it is discount (cheap, where you look to buy). The 50% level is equilibrium.
How is premium and discount used on gold (XAUUSD)?
Traders draw the range on the timeframe of their bias and only take longs in discount and shorts in premium.
Educational content, not financial advice. Every concept here is a probability, not a guarantee.
Free daily gold key levels every weekday at 05:30 GMT, and every Tradedge Pulse trade on the public record.