Following the Dow Jones making new all-time highs yesterday, I tweeted the last part of this first quote, however here is a small section from Larry Hite's interview in Market Wizards:
"When a market makes a historic high, it is telling you something. No matter how many people tell you why the market shouldn't be that high, or why nothing has changed, the mere fact that the price is at a new high tells you something has changed."
And from the end of the interview:
"I knew that if you traded across the board, controlled your risk, and went with the trend, it just had to work. I could see it absolutely clearly...I have two basic rules about winning in trading as well as in life: (1) If you don't bet, you can't win. (2) If you lose all your chips, you can't bet."
Simply because a market has broken to new highs should you be fearful. No doubt there will be plenty of people who will attempt to short these levels, however the direction of the line of least resistance should be clear to everybody. No doubt there will be a time and place to short the market - could be next week, could be six months down the line. So you will never pin point the absolute top or bottom of a move - so what? Waiting for the trend to change at least means that you won't suffer repeated losses by taking positions, and going against the tide.
The second quote from Larry Hite again highlights the risk aspect of trading. Sure, you will incur losing trades - I know my historical win percentage is around the 50% level, but the average size of my wins is greater than the average size of my losers, so I end up well ahead. Along with all successful traders, Hite has an extremely strong respect for risk, ingrained from early on in his career. By having your risk under control, you stay in the game, and your drawdowns will remain relatively shallow, allowing you to profit from those periods where the market conditions are in your favour.