Great questions. First of all, let me add that just because I think that the charts are indicating a significant drop in the markets over the next year or so, doesn’t mean that I can just load up on shorts & throw away the key.
Assuming that I am even correct, the problem with shorting in anticipate of a market top without a strong enough case (decent sell signals, trend indicators rolling over, etc.) is that quite often, some of the sharpest gains during an uptrend come at the top. As such, being too early to the short party can cause a lot of pain (losses), even if your shorts eventually pan out.

Regarding how the next clear downtrend in the market will look is unknown. Maybe we get a black swan event that starts things off with a bang or maybe the next (or possibly the current) market top will look more like the last one in late 2007 where the stock market experienced a sharp advance into the late July ’07 highs, followed by a “shot across the bow” sharp selloff which in turn was followed by one last thrust higher before the next leg down in which the selling started to accelerate the more the market fell (with the usual oversold, bear market rallies along the way).

I have to say that no two market tops or bottoms look exactly the same but they do tend to have these similar phases & often play out in a primary 5 wave (Elliot Wave) pattern, with the 3rd wave being the largest & most impulsive as that is typically when the realization that we are now finally in a bear market sinks into the majority of market participants & forced selling from over-leveraged longs as well as from institutions being hit with masses redemptions, which causes a vicious cycle of more selling as they are forced to liquidate positions to meet the redemeptions, etc..

Bottom line is that we’ll have to take it as it comes & let the charts be our guide as to how we position (long,short,market neutral/cash) & what we position in (sectors, asset classes such as bonds, commodities, stocks, etc.) I will also add that even if this market has another 20-30% upside from here, I’m fine underperforming in certain long-term accounts such as my wife’s 401k, where I’ve recently rebalanced to mostly cash & bonds with a very small equity exposure (unfortunately commodities, gold & shorting is not an option there or in most 401ks). I just don’t believe that the risk/reward on the long side in stock index funds is favorable at this time & I’d rather miss out on additional gains (at least at this time) vs. trying to pick up nickels in front of a steamroller. I should also add that in all of my other long-term accounts (IRAs, SEP, etc.), as typical brokerage accounts, the ability to both diversify using ETFs of various sectors, commodities, bonds, currencies, etc.. as well as shorting via inverse ETFs, allows for the ability to not just sit out the next bear market in cash (or bonds) but also to profit from it.