The first five lessons tell you which way structure points and where the order blocks and gaps sit. Premium and discount answer the next question: is price cheap or expensive inside the current range? SMC traders buy only in the lower half of a bullish range and sell only in the upper half of a bearish one, so a good-looking setup in the wrong half gets skipped.
What you will learn
- How to pick the swing high and low that define a dealing range
- How to find equilibrium and the premium and discount halves
- How to calculate the optimal trade entry (OTE) zone
- How to combine the range with a fair value gap and size the trade
What is a dealing range?
A dealing range is the stretch between the swing low and swing high that price is trading inside. The one that matters is the range whose leg made the most recent break of structure. In a bullish market that is the swing low the leg started from, usually the protected low from lesson 1, and the new high it made.
Use the external swing points, the extremes that define the trend on your timeframe, and ignore the small swings inside the leg. Suppose EUR/USD on the 1-hour chart rallies from 1.0800, breaks the previous high at 1.0960 and tops out at 1.1000. Your dealing range is 1.0800 to 1.1000, which is 200 pips.
The range changes as structure changes. If price later breaks above 1.1000 to 1.1040 after a pullback low at 1.0870, the new range is 1.0870 to 1.1040. If price instead closes below 1.0800, the bullish range is broken, which is a change of character, and you draw a bearish range from the high down to the new low.
Where are premium, discount and equilibrium?
Equilibrium is the midpoint of the range: (1.1000 + 1.0800) ÷ 2 = 1.0900. Everything above it is premium and everything below it is discount. A Fibonacci tool drawn between the swing low and the swing high shows equilibrium as its 0.5 level.
The split matters because it sets how much reward you get for each pip of risk. Put a stop 10 pips under the range low, at 1.0790, and target the range high at 1.1000.
- Buy at 1.0950, in premium: 160 pips of risk for 50 pips of reward, about 0.3 times the risk.
- Buy at 1.0860, in discount: 70 pips of risk for 140 pips of reward, 2 times the risk.
The stop and the target are identical in both trades, so the entry alone decides whether the trade is worth taking. In a bearish range the logic flips: equilibrium is still the midpoint, and you look to sell in the upper half.
What is the optimal trade entry zone?
Optimal trade entry (OTE) is ICT's name for the part of a pullback between 62% and 79% of the leg, with 70.5% as its centre. These are conventions from ICT's teaching, not measured probabilities. Because 62% is already past the halfway point, the OTE zone always sits inside discount for a long and inside premium for a short.
For a bullish range, measure down from the high: level = high minus (range × percentage). With 200 pips of range:
- 62%: 1.1000 minus 124 pips = 1.0876
- 70.5%: 1.1000 minus 141 pips = 1.0859
- 79%: 1.1000 minus 158 pips = 1.0842
So the OTE zone runs from 1.0842 to 1.0876. For a bearish range, measure up from the low: level = low plus (range × percentage).
Put the range together with a gap
The rally from 1.0800 left a fair value gap from 1.0855 to 1.0870, which you learned to mark in lesson 5. The gap sits inside discount and inside the OTE zone, so all three tools point at the same 15 pips. That overlap is your entry zone.
Work the trade on a $10,000 Classic account risking 0.5%, which is $50.
- Place a buy limit at 1.0859, the 70.5% level, which is inside the gap.
- Put the stop at 1.0790, 10 pips under the range low. That is 69 pips of risk. If price breaks 1.0800, the bullish range itself has failed.
- Size it: $50 ÷ 69 pips is about $0.72 a pip. EUR/USD moves $10 a pip on one standard lot, so round down to 0.07 lots, or $0.70 a pip, which puts $48.30 at risk.
- Target the range high at 1.1000, where buy stops above the old high are likely resting (lesson 3). That is 141 pips, or $98.70 before trading costs, about 2 times the risk.
A stop just under the gap, at 1.0850, cuts the risk to 9 pips and lets you trade 0.55 lots for the same $50. But any dip of 9 pips below your entry then stops you out, and inside discount that kind of dip is ordinary. Choose your stop from the structure, then let the stop decide the size, using the position size calculator if you like.
Mistakes that put you on the wrong side of the range
Drawing from internal swings gives you a tiny range with an equilibrium that moves every hour. If the range on your chart is smaller than the leg that broke structure, you have probably drawn it from an internal swing.
Using a range that has already broken is the second mistake. Once a candle closes below the range low, discount levels in that old range are no longer buy zones.
Check the range one timeframe up as well. If the 4-hour range runs from 1.0600 to 1.1000, its equilibrium is 1.0800, and the 1-hour entry at 1.0859 is in 4-hour premium. SMC traders rate a long like that lower than one where both ranges agree.
Finally, do not let a clean order block or gap override the range. A bullish gap in premium is a reason to wait for discount. The smart money trade plan lesson shows how these pieces fit together.
Check your understanding
A bearish dealing range runs from a high of 1.2800 down to a low of 1.2600. Where are equilibrium and the OTE zone?
Equilibrium is 1.2700. Measuring up from the low, the 62% level is 1.2724, 70.5% is 1.2741 and 79% is 1.2758, so the OTE zone runs from 1.2724 to 1.2758, inside premium.
In the 1.0800 to 1.1000 range, a new bullish gap forms at 1.0950 to 1.0962. Do you buy it?
Not under these rules. It sits in premium, above equilibrium at 1.0900, so you wait for a pullback into discount.
A 1-hour candle closes at 1.0785. What happens to your plan?
The bullish range is broken, because price closed below its low at 1.0800. Cancel any buy orders in the old discount half and redraw the range from the new structure.
Key points
- The dealing range runs between the external swing low and swing high of the leg that last broke structure.
- Equilibrium is the midpoint. Buy in discount below it in a bullish range and sell in premium above it in a bearish one.
- The OTE zone is the 62% to 79% pullback, with 70.5% at its centre, and it is a convention, not a probability.
- The same stop and target can give 0.3 times or 2 times the risk depending only on where in the range you enter.
Next lesson: Time your setups to the Asian, London and New York kill zones
All trading is simulated. Rewards are based on performance and are not guaranteed.