Leveraged Trading: Part 3 - Diversification and Trading Rule Enhancement

This episode focuses on diversifying trading strategies to enhance profitability and manage risk. It details two primary methods: adding more trading instruments and incorporating multiple trading rules. The author argues against the conventional wisdom of specializing in a single instrument, presenting mathematical and empirical evidence that diversification across various asset classes significantly improves Sharpe ratios and returns while reducing overall account risk. The text also introduces several new trading rules— Breakout and Carry —to complement the existing Moving Average Crossover, explaining how to select, weight, and combine these rules for optimal performance. Practical considerations such as capital allocation, trading costs, and adjusting risk targets for diversified portfolios are thoroughly discussed, providing a comprehensive guide for systematic traders