ICT Premium/Discount Zones [Exponential-X]

Premium/Discount Zones - Visual Market Structure Tool

[u]Overview[/u]

This indicator helps traders visualize premium and discount price zones based on recent market structure. It automatically identifies swing highs and lows within a specified lookback period and divides the price range into three key areas: Premium Zone, Equilibrium, and Discount Zone.

[u]What This Indicator Does[/u]

The script continuously monitors price action and calculates:

Highest High and Lowest Low within the lookback period
Equilibrium Level - the midpoint between the swing high and low
Premium Zone - the area from equilibrium to the swing high (typically viewed as relatively expensive price levels)
Discount Zone - the area from the swing low to equilibrium (typically viewed as relatively cheap price levels)


[u]Core Calculation Method[/u]

The indicator uses pivot point logic to identify significant swing highs and lows based on the pivot strength parameter. It then calculates the highest high and lowest low over the specified lookback period. The equilibrium is computed as the arithmetic mean of these two extremes, creating a fair value reference point.

The zones are dynamically updated as new price data becomes available, ensuring the visualization remains relevant to current market conditions.

[u]Key Features[/u]

Dynamic Zone Detection
Automatically adjusts zones based on recent price action
Uses customizable lookback period for flexibility across different timeframes
Employs pivot strength parameter to filter out minor price fluctuations


Visual Clarity
Color-coded zones for easy identification (red for premium, green for discount)
Optional equilibrium line display
Adjustable zone label placement
Customizable color schemes to match your charting preferences


Alert Capabilities
Alerts when price enters the premium zone
Alerts when price enters the discount zone
Alerts when price returns to equilibrium
Helps traders monitor key zone interactions without constant chart watching


Customization Options
Adjustable lookback period (5-500 bars)
Configurable pivot strength for swing detection (1-20 bars)
Control over box extension into the future
Toggle labels and equilibrium line on/off
Full color customization for all visual elements


[u]How to Use This Indicator[/u]

Setup
Add the indicator to your chart
Adjust the lookback period to match your trading timeframe (shorter for intraday, longer for swing trading)
Set pivot strength to filter out noise (higher values for major swings, lower for more frequent updates)
Customize colors and labels to your preference


Interpretation
Premium Zone: Price trading here may indicate potential resistance or selling opportunities when aligned with other technical factors
Discount Zone: Price trading here may indicate potential support or buying opportunities when aligned with other technical factors
Equilibrium: Acts as a fair value reference point where price often consolidates or reacts


Trading Applications
This tool works well when combined with other forms of analysis such as:
Trend identification indicators
Volume analysis
Support and resistance levels
Price action patterns
Market structure analysis


Important Considerations
This indicator identifies zones based purely on historical price data
Premium and discount zones are relative to the recent lookback period
The effectiveness varies across different market conditions and timeframes
Should be used as part of a comprehensive trading strategy, not in isolation
Past price structure does not guarantee future price behavior


[u]Technical Details[/u]

Calculation Method
Uses Pine Script's ta.pivothigh() and ta.pivotlow() functions for swing detection
Employs ta.highest() and ta.lowest() for range calculation
Updates dynamically with each new bar
Draws zones using box objects for clear visual representation


Performance Optimization
Efficiently manages box and line objects to minimize resource usage
Uses conditional plotting to reduce unnecessary calculations
Limited to essential visual elements for chart clarity


[u]Timeframe Compatibility[/u]

This indicator works on all timeframes but the recommended settings vary:

1-5 minute charts: Lookback period 10-20, Pivot strength 3-5
15-60 minute charts: Lookback period 20-50, Pivot strength 5-10
Daily charts: Lookback period 50-100, Pivot strength 10-15
Weekly charts: Lookback period 20-50, Pivot strength 5-10


Adjust these values based on the volatility of your specific instrument.

[u]Limitations and Considerations[/u]

What This Indicator Does NOT Do
Does not provide buy or sell signals on its own
Does not predict future price movements
Does not account for fundamental factors or market events
Does not guarantee profitability or accuracy


Market Condition Awareness
In strong trending markets, price may remain in premium or discount zones for extended periods
During ranging conditions, price typically oscillates between zones more predictably
High volatility can cause frequent zone recalculations
Low volatility may result in narrow zones with limited practical use


Risk Considerations
Premium and discount are relative concepts, not absolute values
What appears as a discount zone may continue lower in a downtrend
What appears as a premium zone may continue higher in an uptrend
Always use proper risk management and position sizing
Consider multiple timeframe analysis for context


[u]Version Information[/u]

This indicator is written in Pine Script v6, ensuring compatibility with the latest TradingView features and optimal performance.

[u]Final Notes[/u]

This tool is designed to enhance your market analysis by providing a clear visual representation of premium and discount price zones. It should be used as one component of a well-rounded trading approach that includes proper risk management, multiple forms of analysis, and realistic expectations about market behavior.

The concept of premium and discount zones is rooted in auction market theory and the idea that price oscillates around fair value. However, traders should understand that these zones are interpretive tools based on historical data and do not constitute trading advice or predictions about future price action.

Remember to backtest any strategy using this indicator on historical data before applying it to live trading, and always trade responsibly within your risk tolerance.

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Disclaimer: The information provided by this indicator is for educational and informational purposes only. It does not constitute financial advice, investment advice, trading advice, or any other sort of advice. Always conduct your own research and consult with qualified financial professionals before making trading decisions.