Premium, equilibrium and discount: where price sits
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The short answer
You take a price move, from its low to its high, and cut it in half. The upper half is premium, the lower half is discount, and the middle line is equilibrium. The idea fits in one sentence: look to buy in the lower half and sell in the upper half, because buying in premium means paying a high price for a move that has already happened. The difficulty is not the arithmetic, which is a division by two, but the choice of range: the same price is in premium on one timeframe and in discount on another.
A division by two, and nothing more
You pick a move, take its low and its high, and mark the middle. Above the middle, price is expensive relative to that move: that is premium. Below it, price is cheap: that is discount. The middle is called equilibrium.
There is no hidden formula behind those three words. Expensive and cheap mean nothing in absolute terms either: they say nothing about the value of the instrument, only about where price sits inside the move you chose to measure.
Why it changes something
The reason is geometric, not mystical. If you buy near the bottom of a move, your point of invalidation is close and your target is far. If you buy near the top of the same move, it is the other way round: you absorb a large risk distance to go after whatever is left.
In other words, the same market idea, played in discount or in premium, does not give the same relation between what you risk and what you aim for. That is what our page about risk per trade sets out, where the distance to your stop determines everything else.
The real trap: which range?
This is where it is all decided, and it is what the usual definitions leave out.
The same price can be in premium of the last fifteen-minute move and in discount of the four-hour move that contains it. Both readings are correct. They simply do not answer the same question.
Two practical rules stop you getting lost. The range has to match your horizon: if your idea is about the day, it is measured on the day’s move, not on the last ten minutes. And its two ends have to be structurally real, meaning a low and a high that counted in how the market was built, not two points chosen because they suit the conclusion.
Picking a move at random lets you demonstrate anything, and it is the most common way of convincing yourself after the fact.
What it is not
It is not a signal. Since price is always somewhere inside some range, it is permanently in premium or discount of something, and that never asks you to act.
The classic mistake is buying because “it is in discount”. An instrument in a downtrend spends its life in the discount of the previous move, and keeps falling. The split does not say where price is going, it only says whether the place you are entering is expensive or not for the idea you already hold.
It is therefore a filter, not a trigger: it rules out bad entries, it creates none.
How it combines with the rest
It becomes useful by being added to the other notions. An order block sitting in the discount of a bullish move is better placed than the same block in premium. An imbalance filled in discount tells a different story from the same one filled at the top.
And the reading order stays what it is everywhere else: the direction of the market first, with breaks of structure, and only then the location. The split is there to choose where to enter once you know which way, never to decide the way.
How AlphaGPT uses it
Since it is our subject, we may as well say what we do with it. The split is applied by calculation rather than estimated by eye, across several timeframes at once, which is precisely what avoids the convenient reading described above.
What you get is not an annotated chart but a written analysis and a numbered plan, with an entry, a stop, targets and the size matched to your risk, as our page about reading an analysis explains.
Trading carries a risk of capital loss.