How To Catch A Floor With The Zero

It’s been a while since I put together a Zero video, but as yesterday’s session was a textbook example of how to play prospective sell exhaustion I simply couldn’t resist. So grab a cup of coffee or your favorite tea, sharpen your pencil, and pay attention – you don’t want to miss this one:

First let’s set the stage – this is the Zero right before the open of yesterday’s session. What stood out to me right away was a pretty pronounced divergence on the hourly panel (on the left). Price is painting new lows for the year but the daily Zero is starting to push toward its center (or 0) mark. What we DON’T do here is to blindly go long – no siree bub! This is exactly what market makers would expect retail traders to do – make haphazard bets that a low is in place. Stainless steel rats like us however understand that engaging in hasty predictions is hazardous to one’s account, so instead we’ll watch the Zero Lite for early clues:

Now if you watched the video then I think you understand how we operate down here at the lair. When playing the swings we always look for the Zero Lite to give us sufficient clues to warrant a contrarian position. Most importantly however we also wait for price to back us up a little. There’s no predicting when a low truly is in place, and it’s better to get in a little bit late than too soon.

I usually start with 1/4R or 1/2R and then put my stop a few ticks below the prior low. As price pushes in my favor I slowly add a few more contracts until I end up with 1R. Things got a bit worrisome there at the EOS but the E-Mini did hold the 2k mark overnight and is currently at 2012 as I’m typing this.

Will it hold and is this a permanent floor? I don’t know but I’m well positioned as I started to accumulate a few longs near 1990 – which now affords me the buffer I was hoping for yesterday in anticipation of today’s FOMC announcement. Compare that with someone who’s trying to chase the tape higher here or, even worse, is waiting for an opportunity to scale out of rapidly depleting short positions (ahead of a high volatility event).

Once the fat lady has sung this afternoon we’ll know if our evil plan will come to fruition.

The future is now – so don’t bring a knife to a raygun fight. If you are interested in becoming a Zero subscriber then don’t waste time and sign up here. A Zero subscription comes with full access to all Gold posts, so you actually get double the bang for your buck.

Cheers,