how to avoid the pitfalls of picking a high Sharpe ratio strategy.

Any New Answer than this ??

(The problem with the Sharpe ratio is that it is accentuated by investments that don't have a normal distribution of returns. The best example of this is hedge funds. Many of them use dynamic trading strategies and options that give way to skewness and kurtosis in their distribution of returns.

Many hedge fund strategies produce small positive returns with the occasional large negative return. For instance, a simple strategy of selling deep out-of-the-money options tends to collect small premiums and pay out nothing until the "big one" hits. Until a big loss takes place, this strategy would show a very high Sharpe ratio.

Adding assets with low correlations to a portfolio can decrease the total risk without any loss in potential returns. When we increase the diversity within investments, this commonly results in a higher Sharpe Ratio.)