Tuesday’s action provided a plethora of key set-ups and high probability trades on the short time frame intraday charts on the US Indexes.

Let’s check out the Dow Jones “Diamonds” ETF (DIA):

The first trade when there’s an overnight gap is to fade the gap for at least a 50% retracement and a potential full gap fade. Today only gave us a 50% fade trade early on.

At the failure to close the gap, the market offered up a clear bear flag trade which targeted a ‘measured move’ of the initial flagpole (which included the invisible overnight gap price).

Any pullback to the key 20 period moving average set up a trade with a small target of the previous swing’s price low. These trades worked, but the momentum divergence that was building (purple line) gave clues that the bears were losing steam.

Aggressive traders could have played both sides of the channel that developed, but ‘counter-trend trading’ by buying down-swings in a clear trend day down can be a low probability strategy.

Fortunately, the lengthy momentum divergence led to an upside break of the strong downtrending channel of the day, leading to a miniature bull flag entry and “three push” pattern.

A key breakout trade came NOT at the breakout zone, but at the purple oval I’ve drawn, which represented the pullback to retest the channel and key moving averages.