1) The majority of traders think directionally, and they think linearly. That has them trading momentum and that has them trading trends. Even the traders who look for reversals look for momentum and trend, just in a different direction.
2) Market behavior can be described as a combination of cyclical and linear (trend) components over any particular time frame. As markets become more crowded, cyclical components dominate over time, reducing the Sharpe ratio of those markets.
3) Traders fail because they are thinking in straight lines when they should be thinking in cycles. They think of cycles as sources of choppiness and noise, not as sources of signals that are different from linear, trending ones.
4) Any market cycle consists of mean-reverting behavior at cycle peaks and troughs and trending behavior between peaks and troughs. This ensures that any single approach to trading markets (looking for trend/momentum; looking for reversal/mean reversion) will draw down substantially over many cycles.
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