hey guys in this video we are going to talk about the powerful theory of discount and premium range in smart money trading Concepts we will cover the psychology behind this concept and how you should use it in your trading decisions here are the topics of this video so if that's something you're interested in as always smash the like button to show your support and subscribe to our Channel if you are new see you after the intro and disclaimer [Music] starting with the basics the market always moves in impulsive and corrective waves this fractal nature of the market occurs due to the behavior of Market participants when Market sentiment is bullish and Traders are optimistic about a currency pair they tend to buy it leading to an impulsive move in One Direction however as the price Rises some Traders may start to feel that the currency is becoming overvalued and decide to take profits others might go short which can trigger a pullback or correction conversely when Market sentiment is bearish and Traders are pessimistic about a currency pair they tend to sell it leading to an impulsive move in the opposite direction as the price Falls some Traders may start to feel that the currency is becoming oversold and decide to buy it back which can again trigger a retracement impulsive waves often push the price a greater distance with momentum characterized by same colored candles with large bodies in contrast Corrections represent indecision on the chart marked by mixed color candles with small bodies and sideways Wicks identifying the end of a pullback and the start of an impulsive move can be highly profit as it enables traders to capitalize on potential buying or selling opportunities in the market imagine we are in an uptrend and we want to buy low and sell High to benefit from this bull market we cannot open a buy position right now because the price is too high and may drop at any moment so we need to wait for a correction to enter at a better price the latest impulsive move has started from here and pushed higher all the way up to here the correction will happen inside this range and when the market gathers enough liquidity and buyers come into play it will continue pushing higher again if the price breaks below this level it shows that the buyers are no longer in control and the whole idea of an uptrend comes into question it indicates significant bearish momentum and signals a possible reversal except if it was a fake out and the market aimed to gather liquidity below this low and then take off now back to our correction range here's the question where where should we place our long position and enter the market if we enter too early the price might make a deeper pullback and we end up losing even though our analysis was correct on the other hand if we wait too long the price might start pushing higher without us entering and we miss the trade so the whole idea of trading with the dominant trend is to identify the end of the correction which is the start of the next impulsive movement but how are we supposed to do that this is where Fibonacci retracement levels come into play we always apply this tool from the start of the impulsive wave to the end because it helps us identify the correction range if you apply this tool you'll notice that a bunch of levels appear on the side all of these important levels will act as support and reject the price when it reaches them as it goes lower it shows a deeper retracement but for now we only need the 50% retracement level the area above the 50% % retracement level is called the premium side of the range and the area below is called the discount Zone the 50% level itself is called the equilibrium level when the market sentiment is bullish and we have an uptrend we want to buy in the discount zone for multiple reasons reason number one safer entry the market loves to take out early buyers and use them as liquidity for future movements so waiting for the price to enter the discounted Zone and then looking for signals to go long will instantly increase our win rate of course every strategy has its downsides in this case we might miss some trades due to conservative trading but a Miss trade is always better than a losing one reason number two higher risk to reward ratio we know that no matter where our entry is the first Target for the trade is this recent level of Market structure when the price price Taps into this level some Traders will close their positions or take some profits others might go long this can create a correction or even reverse the direction so this level is going to be our first Target if you enter in the discount Zone our risk to reward ratio would be too low we always want our trade to have more than a one to1 risk to reward ratio that's why trading inside the premium Zone will give us a higher risk to reward ratio and a rational trade reason number three safer stop the best price level to set our stop loss to be safe from Market fluctuations is below this swing low because if the price breaks through this level we will have a market structure shift so the Bulls will do their best to support this level therefore the closer your stop is to this level the safer it is this was the third reason why we enter trades in the discount zone now let's have a recap in the bearish scenario imagine we are in a downtrend and we want to sell high and Buy Low to benefit from this bare market right now we need to wait for a correction to enter at a better price the latest impulsive move has started from here and pushed lower all the way to here the correction will happen inside this range and when the market gathers enough liquidity and sellers come into play it will continue pushing lower again so we will apply the Fibonacci retracement tool and Define the discount and premium zones when the market sentiment is bearish and we have a downtrend we want to sell inside the premium Zone here is an important point the impulsive moves can happen on a larger scale for instance consider this Market structure in the 1H hour time frame we have two turning points for the price the market was in a short-term uptrend a downtrend and then an uptrend again but if we look at the higher time frame these three structures are considered a single movement so if we apply the Fibonacci retracement to the latest impulsive wave we would have our discount in premium zones like this so there is a higher chance for the price to enter the discount Zone and then Witness A reversal in the next part of the video we will show you how to combine this concept with other trading techniques to enter highquality trades but before we continue are you curious about how we stay updated with financial news and fundamental analysis we rely on fastb one of the top trading websites with unique tools to keep you ahead of the market fastb offers an accurate economic calendar real-time Market data and customizable charts with a wide array of indicators and drawing tools all for free with fast bull charts you can experience unparalleled charting tools with unlimited Candlestick history data you get free access to almost 12,000 pairs of financial markets including Forex crypto stocks and so on you can add up to 64 symbol windows and indicators on a single chart so if you want to benefit from multiple trading tools and significantly improve your trading check the link in the description now let me show you how to combine this with smart money Concepts consider this structure as our higher time frame when a change of character in the lower time frame appears it signals a possible reversal if the price contains enough liquidity and bullish momentum the price will start pushing upwards otherwise the price will continue to fall this scenario may happen multiple times until the price gathers enough liquidity and momentum then the price will take off and show us the movements we want to see so a more conservative way of trading is to look for changes of character inside the discount Zone the best way to predict whether we are going to have a small correction or a large one is by observing the previous Market behavior in strong Trends we usually have small pullbacks with significant momentum on the contrary in Trends with deep retracements we expect a larger correction compared to strong markets the same concept is valid with the optimal trading zones in this example if we look at the left hand side we can identify three fair value Gap areas when the price pulls back to these areas they will act as support and push the price higher but if we wanted to place a by limit these two would have been our choice the difference between these three is that the higher one is located inside the premium side of the range and the lower ones are inside the discount we are only interested in buying inside the discount and selling inside the premium this is a more conservative way to enter trades resulting in a higher risk to reward ratio it works best when the market is making deep retracements but if we are witnessing an aggressive Trend buying in the premium side of the range can also be profitable however the important Point here is that you're not going to win every single trade even if you only take highquality setups sometimes the market has different opinions even with a 30% win rate you can be profitable as long as you have a solid riskmanagement plan you can't control the outcome of a single trade but you can control the outcome with an overall good risk management plan as long as you take high quality setups and stick to your rules you will be fine but remember before placing any trade with real money you must do enough back testing with your trading plan to to obtain the performance and confidence needed to trade also if you are looking forward to getting funded check out the services that funded next provides funded next is one of the top rated prop firms on trust pilot that provides one of the lowest spreads and commissions in the industry they offer a variety of plans for Traders with unique Services if you're seeking a prop firm that genuinely supports your trading journey and provides financial needs register with the link in the description to get a 10 % discount with our exclusive code and experience their exceptional services for yourself now let's look at some real chart examples and combine all the concepts we've discussed here we have the pound dollar on the 4H hour chart there is a clear downtrend and this is our recent bearish impulsive movement let's use the retracement tool to identify the premium and discount zones for the recent impulsive wave one thing to remember about live trading is that waves are always expanding and we never know where the movement will end so if the wave keeps expanding we simply adjust the retracement tool accordingly now that we have identified the zones do we have any fair value Gap and optimal trading area if we look at the left hand side we can mark this gap between the candles since this is a very tiny Zone to look for rejections let's also Mark the candle that created this fair value Gap as our order block this box is considered our optimal tra trading area located inside the premium side of the range the idea is to wait for the price to enter this Zone look for a change of character in the lower time frames to confirm the reversal and then go short another confirmation for this setup would be for the market to create equal highs then sweep the liquidity above them and then show a change of character so first we wait for the price to enter our optimal trading area then zoom into a lower time frame which is the 1hour chart and observe the price action here on the 1hour chart we are looking for a price action signal indicating that this short-term uptrend is over and that the price can continue to push lower in the higher time frame Direction so what do we have right now we have a liquidity sweep pattern above these equal highs which is an early reversal signal it shows that this break was nothing more than a fake out and a liquidity run above these equal highs now that the price has collected the liquidity it can continue pushing forward this signal is later confirmed by breaking below this low which is considered a change of character keep in mind that all of these signals have occurred inside the optimal trading area that we marked on the higher time frame so the whole price action in the 1-hour chart suggests a market structure shift and now it's time to place our short entry but the question is where should we place our order usually in this case we would look for fair value gaps and Order order blocks but in the latest move we do not have any imbalance in this time frame so we can either apply the retracement tool and place our cell limit order at the beginning of the premium area or we can zoom in one time frame lower to refine our entry point let's zoom into the 15-minute chart in this time frame we can see that we have an unmitigated fair value Gap area near the swing high if the price returns to this area it would act as resistance and push the price downward so let's open a short position of spread size below the fair value Gap and set our stop above the swing High our first Target would be the swing low for a long-term Target we can track our profits until we reach the next important level in front of the price this is how to apply the trailing technique correctly every time the price breaks below a level of Market structure we reposition our stop above the previous swing High to secure the profit for example take this green line as our stop loss right now our stop is here but every time the market breaks below a swing low we would reposition our stop loss above the previous swing high this way if the price decides to change direction and hit our stop Our Winning trade would not turn into a losing one and since we have secured our profits we can let the profits run without any mental pressure so remember combining all of our analysis including Market Direction fair value gaps and premium and discount zones made this entry a highquality trade if you want to learn more about our trade entry strategies subscribe to our Channel if you enjoyed this video please give it a thumbs up to support us in making more videos more frequently also comment below with your thoughts and what kind of topics you want us to cover thanks for watching and I'll see you in the next episode