The reason that this mentality is dangerous is because you are only proven right as the market continues to move against you. Say you are confident that the market "must take a breather" so you short the market. If the market then subsequently rises for a seventh week in a row, your rationale for shorting is only reinforced, as the odds of the market rising for an eighth would seem even more improbable.
There are literally thousands of examples of markets doing what seemed impossible at the time. Just one example, and I am sure there are better ones out there, was what the S&P 500 did in 1995. This market basically did not go down for 18 consecutive months in a row:
Imagine shorting after the sixth month of gains there.Another logical fallacy that newer traders get sucked into is relying on technical indicators. If you buy a market that is "oversold" your reason for buying only gets stronger as the market moves against you and becomes even more "oversold."
There is no shortage of examples of this for 2008. Here is just one example of a weekly chart of Citigroup:
Any investor who bought the dips in the RSI for this stock (or hundreds of others) got burned as money was remorselessly transferred from amateur traders to momentum traders.
What's worse is that there are dozens of other indicators new traders can use to delude themselves. Another example is the hilariously named "Ultimate Oscillator"
As the above chart shows, anyone picking a bottom in 2008's commodity sell off probably did not fair so well, despite what the ultimate oscillator was showing.
The bottom line of all is this is that markets often do what is unexpected, and you're better off buying when prices are rising and shorting when prices are falling.
