The difference between trading the “same DC settings (e.g 20) on different TFs (1h, 3h, 8h and daily) or trad[ing] several DCs on one TF (e.g. DCs 10, 20, 30, 40, 50, … on 1h TF)” is really only in the way it is described and thought about.
The diversification between the 1h and 3h channels is obviously less than that between the 1h and 10 day channels. I think the magic of system diversification is not in the number (10, 20, 30, etc.) it is in the relative length. The 10 hour vs the 10 day vs the 10 week channels offer a good bit of diversification, but there would likely be little to no difference over the long term between the performance of a trader trading those three and another trading the 11 hour, 11 day, and 11 week channels or another trading the 14 hour, the 14 day, and 14 week channels. The moral of the story here is not to be too concerned with whether we are trading channels of a certain length. The guys that find a big difference between the 12 and 13 period channels are neck deep into curve fitting.
If you put all the channels into the same denomination, (make them all day channels for example) then a trader trading a 24 hour channel, a 24 day channel, and a 24 week channel, is trading 1, 24, and 120 day channels. You can state these three systems either way, it doesn’t matter.
My selection of channels has more to do with increasing diversification and tradability. I can’t trade intraday channels so I don’t try. I trade the ten day channel because it is the shortest that is a bit forgiving and I can adjust it once a day. I trade the four week channel because it is very easy to keep up with and it is twice the length of the ten day. I trade the ten week channel because it generally can capture most major moves, and I trade the twenty week channel because it can catch the major swings even under circumstances of high volatility. The diversification between those four channels is pretty good and if I were to add another I would go out to 50 or 52 weeks or something like that. But if you were to say that I should switch from the ten to the eleven week channel I would answer that the difference would be almost meaningless.
The whole idea is that we do not know how volatility and trends will look in the future. The ten day channel may have performed magnificently in the last two years in a given pair and may actually lose money over the next two years in that same pair while the ten week which lost money over the last two years may give a stellar performance in the coming two years.
The use of system diversification can be termed “scaling in and out” but it is certainly different than a more traditional scaling pattern such as buying more at so many ticks or what have you. Quite literally, system diversified traders can end up long a pair on one system and short the same pair with another. So that fact must be kept in mind. That said, I don’t want people getting this confused with some retarded “hedging strategy”. Each system gives a measurement of volatility, an entry, and an exit. And they are totally independent of one another. The system diversified trader does not care whether one system is long, short, or flat, he follows each system independently without regard for the others. With that, there are spectators that find system diversified traders too flat in a given pair because they are long and short at the same time in two different systems and others find them too heavy in a pair because they have multiple long or short positions in different systems.
The thing to remember is that we don’t know the future and neither does anyone else. Thus diversification is the only way to keep us from trading with biases we have developed by looking at historical data (curve fitted system trading).