However, the overnight reversal in ES from being down 8 points at one point to being up several points made it clear that no big down move was coming. At the same time, there was hardly any upside pressure – so it suggested a range trading day for Monday. So, the plan was to get rid of shorts at low end of the range and get into new short positions at the high end of the range, which is what I did. In general, one must plan for all four scenarios (at the very least)

• trend up
• trend down
• ranging day with down first and then up
• ranging day with up first and then down

This is something that should be obvious, but a lot of new traders (myself included) would forget. Till few months back, I would just plan for one scenario which was largely dictated by my portfolio and when that wouldn’t play out, then I would do some stupid moves in panic – be it due to fear or due to greed. Then, some one (I think it was Pike Trader at TK’s blog) asked me what my plan was if the market did not gap down and instead spiked up and kept going up.

Yes, when you are massively short, just the mere thought of a market ramping up and only up is very painful. But it is best if I bear this pain today in the evening – this would mean much less financial pain for me tomorrow if that ramp up scenario indeed plays out. I have two choices:

• I can either deny the possibility of a ramp up and then get taken to the cleaners tomorrow if it indeed ramps up.
• Or I can live/walk through a possible ramp up today itself and plan out what I would do if faced with that scenario – this is what makes or breaks your account.

A range trading day like today when the market goes into both, red and green territory is a wonderful day for managing positions. Of course, there is nothing better than the market heading in the direction that would benefit my portfolio the most. But that doesn’t happen always. So, one has to adapt and make the best out of what is offered.

Averaging down/Scaling in: This is something that most of you would already know. At the beginning of the day, I purchased some contracts of USO Jul $39 puts @ $1.20. Subsequently, USO moved in a direction away from what I predicted. So, I added more positions at @ $1.03 to give me an average price of $1.13. This is why it is critically important that one “scales-into” a position and not buy the entire position at once. Scaling in gives you a chance to refine your position in case the initial entry was a bad one.

Buy-low Sell-high or Vice-versa: On Friday, I purchased QID Jul $32 puts @ $1.50. Today, at the close, these puts were priced at $1.30. If I just held onto them, then I would be looking at a loss of $20 per contract. Instead I used the down move in the beginning of the day to sell my puts @ $1.55 and then get back in near the highs of the day again @ $1.25.

So, what is my current cost per contract – $125 minus $5 (profit that I made by selling Friday’s purchase) making the cost to be $120 per contract. So, even though from Friday to Monday, QID Jul $32 puts went down $20 per contract, I am still looking at $10 profit. This is the magic of managing positions.

Today it was easy to sell my puts near the lows of the day because the move down clearly lacked momentum, and the quick reversal last night only confirmed that the move down was a fake out/bear trap. Of course,  one has to balance this out with letting the winners run.

I will also take this opportunity to point out that this is how Atilla who has been short since SPX 720 has probably not lost a dime, and probably even made some even though SPX today is 200+ points higher.

In summary, two key elements that are critical for success in trading:

• Good entry (if the entry is bad, managing positions can only do so much).
• Good position management (seldom will your entry be perfect, but you can take advantage of the up-down gyrations of the market to refine your positions).

Folks, if you found this useful, some love shared would be very much appreciated

The algorithm behind this indicator is of course a proprietary one, but what I have understood so far from using it and observing it is that it tries to measure the momentum/pressure/push in the moves. A lot of times we have a big move in ES, say 10 points up in half an hours… but the zero indicator would show no signal, thereby implying that there is hardly any buying pressure and that market is moving up on fumes.. This suggests that a turn is just around the corner.

I used it in April – did really well. I opted out in May because I was going to be busy at work and not be able to trade much. I jumped back in June again, this time for good. Every week, on at least two to three occasions, I am able to make some trading decisions that I would not be able to make without using the Zero Indicator. Check out daily wrap posts at Evil Speculator blog that describe how the zero indicator did that particular day.

http://evilspeculator.com/?cat=124

PS: Mole has not asked me to post this. Nor am I getting any referral fee or any kind of kick back from Mole if you subscribe to it. I am posting this out of my free will. The only reason I am posting there here is because I like it and use it, and it might benefit some of you out there. I just want the readers of this blog to know that there is a tool out there, which costs just $50/month and can really improve your trading performance.