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Cocoa Has Become A Trader's Paradise

Updated: Nov 24, 2020

Published on Feb 21, 2018

Cocoa has been trading in a well-defined channel on nearly all time-frames offering amazing swing trading opportunities for both bulls and bears. In this post I will be explaining how you can take advantage of the recent range-bound trading in Cocoa Futures.

Cocoa has become a popular commodity among traders after declining more than 40% in 2016. Many commodity traders have been trying to call a bottom in cocoa and have been expecting a meaningful breakout. However, cocoa has been trading in a range between ~ $1800-$2200 mainly profiting swing traders as opposed to long-term speculators.

Trading channels are one of my favorite technical patterns. That is due to the fact that I can constantly trade in and out of the channel while having a defined risk by placing stop-losses. While most traders prefer to only trade in the direction of the trend, I sometimes prefer to have an unbiased view and trade on both directions so I can only take advantage of high probability setups. Channels are a great technical pattern for trading on both the long and the short side and not limiting yourself to only the trend's direction.

Cocoa has been trading in a very well-defined channel for the past two months. This channel is nearly 5% in length offering amazing opportunities for professional commodity traders. As you can see in the daily chart below, cocoa has been pushing against the upper channel for the last few trading sessions and chance of a pull back is quite high.

What is interesting about this trading channel on the daily chart is that the same channel also holds on the hourly, 4-hour and even the weekly chart. This adds reliability to this channel and allows us to track the price on all time frames and act accordingly.

Although cocoa is trading in the upper range of this channel, I would highly advise against shorting without placing tight stops. Cocoa has been refusing to decline for the past few sessions and has been pushing against the upper channel. Therefore, the possibility of a breakout in cocoa cannot be neglected and it's better to incur a smaller loss as a result of your stop-loss getting triggered than be holding a short position if cocoa breaks-out to the upside.

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