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It's not clear to me how favoring, and trading for, and drafting exclusively younger players really makes the game more difficult. If you follow that strategy, you're constantly getting infusions of young talent, at the expense of the AI. True, not all the prospects will develop, but then not all the highly-rated older players will play up to expectations, either. And older players will get worse over time, AND be more expensive than a promising minor-leaguer. It seems to me that sticking with younger players actually makes the game easier.
The thing I would suggest is that you turn off ratings entirely, or view only talent ratings, not the actual ones. That makes the game more challenging and IMO more realistic.
You mention that you "received a former Pitcher of the Year, a couple of middling prospects, a backup catcher, and three draft picks for a couple of middling prospects and a 25-year-old catcher coming off a .314/.449/.577, 30 HR 100 RBI 100 Run season." I would also suggest that you turn off draft pick trading entirely, and restrict the number of players that you can trade per deal - if every trade has to be a straight-up, 1-for-1 exchange, it makes it very difficult to address one problem without creating another, and it works to some degree if the maximum players you allow yourself to trade is 2 or 3.
For a real challenge, you could even refuse to make trades at all; you'd have to improve your team solely through the draft and free agency. Or you could refuse to sign free agents.
Basically, anything you do that restricts either your information or your ability to do things will make the game more difficult. There are a lot of good suggestions in this thread, and hopefully some of them will give you the challenge you're looking for.
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