First, let me say that the current system I trade is an equity trading system. To some degree it is possible to diversify among equity industries or sectors, but many equities move together, especially during the big swings of the market. For example, there were not many unscathed stocks during 2007-2008, regardless of industry.
I have tested this idea by running the MultiStage System against specific industries and sectors. Ultimately, there was no big difference among them. Some sectors (biotech, finance recently, technology) seemed to be more volatile, but generally the system worked well regardless of industry. Conclusion: today I don't segment trades based on industry.
Also during testing I looked at market cap. I have found that stocks are more "well behaved"... in other words more predictable, as they are from larger companies. The bigger and more liquid the company the more predictable the trading pattern. As a result, I have designed a position sizing algorithm that takes this tendency into account.
So... the short answer to the diversification question is... sort of. I will continue to look at ways to optimize the system regardless of segment, but generally it works well in any market.
Good trading...
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