Premium, discount and OTE

What it is

Take a swing from its low to its high and split it at 50% (equilibrium). Above 50% is 'premium' (expensive), below is 'discount' (cheap). The idea is to buy in discount and sell in premium.

OTE (optimal trade entry) is a pullback into roughly the 62%–79% retracement of the swing: deep enough to be good value, while the swing is still intact. The 70.5% level, the middle of that band, is the one most often singled out.

All of this needs a real dealing range: a clear swing low and swing high that the current move started from. Measure a random stretch of chart and the 50% line means nothing.

How to spot it

• Draw a Fibonacci retracement from the swing low to the swing high (for longs), or high to low (for shorts).
• The 50% line is equilibrium; the 0.62–0.79 band is the OTE zone, with 0.705 in the middle.

How to use it

• In an uptrend, look for longs only in discount, ideally in the OTE zone and lining up with an FVG or order block there.
• Avoid buying in premium; that is where shorts or profit-taking make more sense.

Common mistakes

• Drawing the swing from random points, so the levels mean nothing.
• Treating OTE as an entry on its own, with no reaction or confirmation.

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