Trade of the week: short New York cocoa

(AI video summary)

Current trade overview: short NY cocoa

In the current market environment, a trading opportunity has been identified with New York Cocoa futures. The strategy involves taking a short position based on technical analysis showing repeated resistance tests just below $9500, combined with an ongoing downtrend line that appears to be holding.

Markets have been volatile recently as China and the United States (US) appear to be negotiating a possible trade deal, with both countries having lowered tariffs in the interim. While this has caused sharp movements in the US dollar, gold , and various indices, cocoa presents a more defined technical trading opportunity.

Trade setup

• Entry point: short New York cocoa futures around current levels up to $9450, anticipating continued rejection at resistance
• Stop loss: set at $9700, positioned above the current resistance zone to limit potential losses if the market breaks higher
• Target: aim for a downside target around $8000, the support zone where prices consolidated throughout March

Risk-reward ratio

This trade offers a favourable risk-reward ratio, with approximately $250 at risk per contract (from entry to stop loss) and a potential reward of around $1450 per contract (from entry to target). This creates a reward-risk ratio of nearly 6 to 1, making it an attractive proposition despite the inherent risks associated with commodity futures trading.

Market context

The medium-term trend for New York cocoa remains downward, with the price currently testing both horizontal resistance below $9500 and a descending trendline that has contained recent rallies. The commodity has made several attempts to break through this resistance zone during April but has failed each time.

The $8000 support level represents a significant consolidation zone from March trading activity and provides a logical target for this short position. Technical analysis suggests the path of least resistance remains downward as long as the current resistance holds.

Cautionary note: while this trade presents a structured opportunity, market conditions can change rapidly. Traders are advised to consider their risk tolerance and market outlook before engaging in this trade.