Don, the play (or clearance) you're trying to set is the play in the axial direction as measured by movement in the axial direction between the outer ring and inner rings. This is best done by setting the base on the hub face, the dial on the spindle, and push-pull the hub to set the play. You said the rotor was secured so it won't move, and it may even work in your case, but this is not the best way to do this. Once you've spent time as a machinist, you find metal moves and behaves funny where a layperson wouldn't expect movement.

It does take a bit of technique to get a feel for what you're measuring. The dial indicator preload isn't a big deal. You did that step correctly. They just mean the play you're measuring should be within the range of the dial, and not to try and start at zero. Play of 0.02 mm should be easily within the range of any standard shop dial.

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95 E320 Cabriolet, 159K