I am going to sound like a dickhead, but I know not of any other way to address your questions.
(A) What is your definition of system? Is this system of yours the same as the one I talked about? I get an impression that they are not the same. Don't forget about the all important context.
(B) When bottom line performance cannot be measured in a reliable way, how can one use it as a measure of performance?
(C) For a context-aware signal that has a high probability of success (win-rate), the expectancy will be positive. That is all that can be said -- positive. Not how big that number is. So, why bother with expectancy?
(D) Conceiving scenarios of high win-rates that results in negative expectancy is an exercise in intellectual masturbation. It doesn't happen. I am only talking about context-aware signals.
(A) Do open-ended systems like MA crossing have contexts? If so, what I talked about is also valid for them.
(B) If these systems are based on signals without contexts, expectancy is the only way to measure the feasibility of these systems. But, this measure is flawed and cannot be trusted. It is just a mirage that provides hope. I used to run (still do for a fund) systems like these. The only way to trade these systems are in a basket of instruments because they provide the required "risk diversification". In other words, since the measure of expectancy is flawed, and there is not other way to measure the performance of these systems, lets spread the risk. After years of doing this, I am convinced this is not the way to trade. I am yet to find a way to trade these systems as-is profitably on single instruments. Trading signals that are context-aware is the way to go.
VPhantom, in order to understand what Redneck, Handle123, or any of the other successful traders here is talking about, you need to understand context. Without that understanding, you will, more likely than not, misinterpret their posts.
So what is this context I keep harping about? Let us say you identified a break out signal. Let us be specific: a break-out to the upside signal. We humans are good at pattern recognition. So, this one is easy to recognize. Now, you also see that sometimes this signal works by "taking off", some times it fails, and other times it pulls-back and then moves up. There are two ways to approach this signal:
(a) convincing oneself that one is playing a game of probability, and the described action is what one would expect in this game. To develop trading plan around this signal, one would measure historical up-move "points", pullback "points", and based on the distributions come up with what one considers a good profit target, and stop-loss levels. This is playing a signal without context.
(b) You dig-in to understand the Price Action around all the instances you find when the breakout "took-off". You then compare it with the scenarios where the pullback occurred prior to the move up. In this comparison of Price Action you find differences between the two -- and you form 2 contexts. Now, you look at more instances of break-outs that took-off to make sure you have a stronger grip of its context (lets call this Context-A). Then, you design a trading plan to trade the "take-off" breakouts in Context-A. Similarly you design a trading plan to trade "pullback" breakouts in Context-B. You don't trade "take-off" breakouts in Context-B, or "pullback" breakouts in Context-A. Here, you have made signals context aware. You don't rely on historical pullback distribution to set a stop-level or historical "move-up" distribution to set profit targets; the signal in its context will provide stop-level, and a context change will provide you a profit target -- no need for any distribution. Also, since "take-off" breakouts have a high win-rate in Context-A, you will have a positive expectancy, but will not know the size of it; or, no use measuring the size of it for every new instance of change from Context-A will produce a different sized profit. The same is true for "pullback" breakout in Context-B. You can measure expectancy, but what do you use it for? In trading a signal without context you use it (implicitly) to set you stop-loss and profit targets; here, they are of no use.
Some food for thought: In the trading world, it is commonly said:
(1) every losing trade is an opportunity to learn. What does one learn when one trades signals without context? One cannot say they learn about the signal's real expectancy 'cos no one can predict future size of profits or pullbacks (which is used in determining stop-loss). When I trade context-aware signals, I learn more about my context. No more invalid assumptions. Just pure Price Action.
(2) make a trading plan your own. How does one make a signal without context their own? Every one sees it. In trading a context-aware signal, I bring my understanding of context, based on Price Action, to the trading plan. That is how I make the trading plan my own; not the signal itself, but signal-context combination.
Will stop here.
All the best.
Regards,
Monoid.
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