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The System of Expectancy: A Guide to Structured Trading Decisions

The System of Expectancy: A Guide to Structured Trading Decisions

In trading, the importance of a clear, structured approach cannot be overstated. A vital element of this structure is the System of Expectancy. This approach ensures traders operate with a logical, step-by-step mindset, anticipating potential market movements and preparing for various outcomes. At its core, expectancy in trading involves forming hypotheses about market behavior and having contingency plans for when reality diverges from expectations.

The Essence of Expectancy in Trading

Every successful trade begins with an expectation: will the market bounce back, break a key level, or consolidate? By employing tools such as trigger points, support and resistance levels, or dynamic indicators like Fibonacci retracements, traders can identify areas where the market is likely to react.

For instance, a trader might notice a market approaching a support level identified by an indicator such as the E.G. Trigger Point. The primary expectation is a bounce upward. However, if this fails to happen, a secondary expectation—a retest of the level followed by a continuation downward—takes precedence. This logical sequence creates a structured approach, helping traders manage their decisions with precision​​.

Case study #1: ES 25-03 (12/30) 

Below are all the first-touch scenarios for ES, as observed. Let’s take a moment to observe the potential R:R and the success rate.

Scenario #1: The first touch didn’t hold. Could we expect this? Maybe. The movement was anomalous.

Scenario #2: The first touch didn’t hold. Could we expect this? Somehow. Look how close it is to the next level. Considering that these levels act as magnets when you see such a scenario where levels are close to each other, there’s a high probability that the market will try to reach the second one. But then Sup 1 turned into resistance, as expected.

Scenario #3: The first touch held. A reasonable profit target was Sup 1, which turned into resistance.

Scenario #4: The first touch held. Scenario #5: The first touch held.

Now, let’s take a look closely. In the scenario below, you can see a system of expectation in action:
(1) The market touched a support level for the first time and then bounced back (expected).
(2) Then, a shift signaling was observed, indicating that the market wants to break it. 
(3) Support level turned into resistance.
(4) First touch on the next trigger point.
(5) A small liquidity grab and another respect.

Case study #2: NQ 25-03 (12/30) 

Below are the expected scenarios for NQ as observed. Let’s take a moment to observe the potential R:R and the success rate.

The figure below shows that a resistance level (previously respected) broke, retested (validated), and turned into a support level.

Definition of First Touch

1. First Touch of the Current Trading Day

This approach defines the first touch as the initial interaction of price with a specific level during the current trading day, starting from the market’s opening.

  • Relevance: The first touch during the trading day often reflects the strongest reaction due to overnight orders or fresh liquidity entering the market. Traders see this as a high-probability area for reversals or breakout opportunities.

  • Application: Suppose an E.G. Trigger Point level is identified as a support zone at 4000 on an index. If the price touches this level at 10:00 AM for the first time, traders anticipate significant activity, such as a bounce or a breakdown, depending on market momentum and sentiment.

  • Caveat: If the level has already been interacted with in the pre-market or overnight session, the strength of the first touch may be diminished. This is particularly relevant for futures or Forex markets that operate nearly 24/7​.

2. First Touch of the Current Session

This definition focuses on the initial interaction of price with a level within the current session, such as the morning session, European session, or Asian session.

  • Relevance: The first touch within a session is critical for intraday traders who focus on shorter timeframes. Different sessions bring different market participants, potentially leading to a new dynamic and increased volatility.

  • Application: For example, in the U.S. session starting at 9:30 AM ET, the price might test a support level for the first time after the opening bell. Even if the level was touched during the Asian or European session, traders consider this touch unique to the U.S. session.

  • Caveat: Some traders may consider session-overlap periods (e.g., between European and U.S. sessions) as a gray area where the first touch rule needs careful context. Market momentum during these overlaps can blur the significance of session-based first touches​.

3. ATR-Based First Touch

This definition introduces a more dynamic approach, using the Average True Range (ATR) as a volatility-adjusted measure to determine the significance of a first touch. The ATR quantifies market volatility and helps filter touches based on price movement magnitude.

  • Relevance: ATR-based first touches are especially valuable in trending or volatile markets. The level is only considered “touched” if the price approaches within a percentage or multiple of the current ATR, ensuring that insignificant fluctuations are ignored.

  • Application: Suppose the ATR for a stock is 10 points, and a resistance level is set at 200. If the price moves within 2 points of 200 (20% of the ATR), this can qualify as the first touch under the ATR rule, even if it doesn’t precisely hit the level. This method accounts for market “noise” and avoids premature reactions to insignificant touches.

  • Caveat: ATR-based touches require ongoing recalibration as volatility shifts throughout the day. Over-reliance on this method without considering broader context or session dynamics could lead to missed opportunities​​.

Practical Integration of First Touch Rules

Traders can choose a single definition of the first touch or blend them based on their strategy. For instance:

  • A day trader may prioritize the first touch of the current session, focusing on high-volume periods.
  • A swing trader might combine the first touch of the trading day with an ATR-based filter to ensure significance.
  • Scalpers could use session-based touches in conjunction with shorter-term ATR measures to refine entry points.


By clearly defining and adhering to these rules, traders ensure consistency in their approach, reducing ambiguity and enhancing the precision of their trades.

So, looking at the following figure–could you explain why this can be considered a “first touch”?

Why Expectancy Matters

  1. Clarity in Decision-Making: A well-defined expectancy framework eliminates emotional decision-making. When the market reaches a critical level, the trader knows what to expect and how to respond.

  2. Risk Management: Expectancy enables predefined risk scenarios. If the primary expectation fails (e.g., a bounce at a support level), the trader can limit losses and prepare for the alternative scenario (e.g., a breakout).

  3. Improved Performance: Structuring trades around probable outcomes allows for disciplined entries and exits. This not only reduces overtrading but also optimizes profit potential by capitalizing on predictable market movements​​.

Building the System of Expectancy

Here are the key steps to developing and applying this concept in trading:

  1. Define Critical Levels: Use tools like the E.G. Trigger Point or Dynamic Fibonacci Retracement to identify support and resistance zones. These levels are likely areas of significant market activity​​.

  2. Develop Primary and Secondary Expectations:

    • Primary Expectation: What you anticipate based on historical data, patterns, or indicator signals.
    • Secondary Expectation: What you will do if the primary scenario fails, such as a breakout instead of a reversal.

  3. Integrate Indicators and Patterns: Use tools like the E.G. Price Action to confirm triggers. For example, if a bullish candlestick pattern appears at a support level, it supports your primary expectation of a bounce​​.

  4. Monitor Market Context: Tools like the E.G. AI Accelerometer and Cumulative Delta offer deeper insights into market momentum and order flow, helping validate your expectancy scenarios​​.

  5. Adapt as Necessary: If the market defies both expectations, step back. Reevaluate your analysis before engaging again. Trading isn’t about predicting every movement but responding to the most probable outcomes.

The Benefits of Structured Expectancy

Expectancy is not just about predicting outcomes; it’s about preparing for them. For example, when a support level holds, it aligns with your primary hypothesis, offering a strong entry signal. If the level breaks, secondary signals, such as retests or momentum shifts, provide alternative opportunities​​.

By following this methodology:

  • You anticipate. Expectancy-driven trades are planned, not reactive.
  • You prepare. Each trade has a blueprint, reducing uncertainty.
  • You adapt. Structured plans accommodate the dynamic nature of markets.

Final Thoughts: Trading with Confidence

The System of Expectancy is a mindset as much as it is a strategy. It ensures traders are not blindsided by market behavior but instead embrace it with logic and adaptability. By leveraging advanced tools, such as the E.G. Trigger Point, and understanding critical concepts like Fibonacci retracements and order flow, traders can navigate the market with confidence and precision.

Remember, successful trading isn’t about always being right—it’s about managing expectations and responding effectively. With a solid expectancy framework, you’ll consistently turn the odds in your favor, one trade at a time.

Happy trading!

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