The general idea is a 4% withdrawal rate will produce a fairly successful income stream for a long time without depleting the principal. You just have to be flexible as you pointed out here:
Thus if the market falls I will have to make due with a little less, or if the Market SCREAMS next year I can/will take out a bit more.
So the general idea is on average you can take out 4%, but if you have 3-4 bad years in a row this will kill your plans for the long-term so you will have to take out less if market returns dictate. The sequence of returns is extremely important. If the market tanks for 3 years immediately after you retire, it will hurt you a lot more than if it tanks for 4-5 years 15 years into your retirement.
Also, how do you plan on the Market Gain/Loss Rate - currently I am using 6% even - but the market is more like 2%, 10%, -10% 12% -2% ...
You don't. Average those numbers you quoted (12%/5=2.4%). That's either pessimistic, or a bad 5 year run, but the point is whatever your average anticipated market returns are should dictate your SWR after adjusting for inflation. The trinity study concluded 4% is a safe rule of thumb. Some people are more comfortable with 3%. Stick with one of them, and forget about the market dips unless they are really severe.
When you hit that -10% year, spend less and/or try to pick up a bit of income (you know, from a job, GASP) if necessary.