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Hot, Sweet Opportunity

One thing that can warm traders’ hearts as the Winter sets in is the attraction of hot, sweet opportunity that the commodity markets are currently offering. In this article, I’ll be highlighting the attractions of Cocoa and Sugar, which are two of the more attractive commodities currently populating my ‘hot’ watch list due to their trends and potential to provide me with trading opportunities.

As a trend trader, I am usually on the lookout for strong, clear price action with an obvious sense of direction. It also helps when I find a confluence of reasons to add confidence in the impending moves.  I usually use the daily timeframe for levels, and target this for joining the trend, and use the weekly timeframe as a confirmation of the strength of the trend direction.

Starting off with the Cocoa Bulk Bean (UK) weekly timeframe. Price has recently reversed from a down trend to an uptrend with the initial signs of a continuation on the cards. 

This bullish reversal is confirmed on the lower, daily timeframe, where there is a potential entry location at about the 1.600 level. Upper significant resistance lies around 1,700 and 1.743 respectively, offering me a potential profit target. 

Let’s consider both Sugar Raw and Sugar White. The latter is the ‘sweeter’ of the two as it is currently the leader at the time of writing.

Starting off with Sugar Raw on the weekly timeframe we have an established downtrend, with the simple moving averages confirming the steady selling momentum. Price is rapidly approaching the 13,500 which is a level of historical support. The next one below that is circa 12,575, again, where my profit potential to the downside would lie.

Ideally, I would be looking to join the trend to the downside as price breaks down below 13,500, and returns to retest it as resistance. That will provide me with a signal to enter, with profit taking options just ahead of 12,575. But I will only be joining that trend if my setup occurs as I expect it to, and according to the clear rules of my strategy.Finally, covering Sugar White, the key difference from Sugar Raw, is that price action has been more decisive at establishing the new low as it actively trends downwards. The three major levels of support on this timeframe are 424, the round, psychological level of 400 and 376. Price has hit the 400 level and, for me, any healthy retracement into the 10 and 20 moving averages around (424) will catch my attention as I look to join this trend downwards. Historically, areas of price equilibrium combined with other key factors form elegant ways to join an established trend. 

Cocoa and Sugar are only two of the commodities that are currently offering strong trending opportunities. But the benefits of an approach that confirms the daily and weekly trends and key historical levels is preferable to my style of trading. In the end, a good strategy comes down to patience in waiting for optimal entries and qualifying the entry against a strict checklist of criteria.

Happy trading.

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