Hedging Strategy
    a.k.a. how I protect my long positions

MY HEDGING STRATEGY: Using an inverse Exchange Traded Fund (ETF) position to cover 80-95% of all long position in order to reduce risk or loss of capital. The fund I prefer is @SH - SPDRs inverse S&P500 index. Note: I never use leveraged inverse funds like SDS - ProShares Ultra Short S&P500 index.

EQUITY POSITIONS DEFINED: Each portfolio allocation is equally divided into position trades and long investments. For a $15,000 portfolio, about $7,000, the long investment, is covered by an inverse Exchange Traded Fund. A position trade is like a swing trade - 1-2 week holding period. A long position is an investment and I hold until it gets stopped out. 

INVERSE EXCHANGE TRADED FUND: I prefer to use the S&P500 inverse ETF @SH for all my protection of long positions. I never use very risky leveraged Exchange Traded Funds (Ultra), because my intention are to preserve capital and not to hit a home run (betting on making money).

WHEN TO USE HEDGING: I use inverse ETFs after all my swing trades (50% of portfolio) have been sold or have stopped out, plus the market must be in a down trend - usually the Relative Strength (RSI) signaled a change of trend.

WHEN TO SELL INVERSE POSITIONS: This is the most difficult decision one will encounter when using these funds. But in all cases one must keep in mind, not to hold these funds to make a huge profit or any profit at all for this matter. I like to put a tight stop limit order on these inverse positions after the long positions have been sold - just in case the market reverses its trend. In most cases I usually start selling about 1/2 of the inverse position using a stop/limit order.

EXIT & RE-PURCHASE LONG POSITIONS: Long positions (investments) will sell off after they have crossed the 7% down trend threshold from the last highest closing price. Should the market correction continues lower, one would need to follow the down trend to recognize a reversal in the trend to re-purchase equities. At this time the 7% exit point is not valid anymore and as such a 2% tight stop from the purchase price should be used until a clear uptrend and new high closing price has been established, usually after a 7% gain from the lowest closing price.

HOW TO TAKE PROFIT: During a market correction, there is not really a chance to make a profit. As such, the hedging objective is to preserve capital. When the market keeps going down, one will have profits for the short positions, but it is offset by the losses in the long position - it's like a balancing act.  Therefore timing is of up most importance when to sell one or the other.

TRADING AROUND A CORE POSITION: During an ongoing market consolidation or correction, I like to take profit for inverse funds after all long positions (investments) have been sold. When the trading price gets close to a 2% gain from the highest closing price, I place a limit sell order for about 1/2 of my holdings. After taking a profit, I may add again to my holdings. This strategy I call "trading around a core position". I use strategy only for inverse ETFs. The basic idea is to avoid putting myself in a position where I have too much on the table in case the ETF gets swatted down, or to little on the table to take advantage of any upside that comes my way.

IN SUMMARY: During a market correction, one has two choices - sell all positions and keep the money on the sideline or hedge the long positions to preserve capital and reduce the risk of losing. I prefer the latter, hedge the long positions. Because when the market reverses it's trend, I would be in the game instead of watching on the side line. One may have some more loses, but on the end it's easier to gain it back.

FINAL JUDGMENT: I always sell some of the short positions first (stop/limit order), before selling the long positions. Always watch the trend - charts don't lie, fundamentals may fool you. And remember: "you need to know, what you're going to do next" and when in doubt, stay out!. It's generally better to lose out on profits, than to lose money