Hi Traders! Cocoa forecast update and follow up is here. On July 14th I shared this Technical Analysis – Cocoa Short Term Forecast post in my blog. In this post, let’s do a recap of this setup and see how it has developed now. If you would like to learn more about the way we trade and the technical analysis we use then check out the Traders Academy Club. Spoiler alert – free memberships are available!
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Now let’s summarize the idea first:
Cocoa H1(1 Hour) Chart
My short term view was bullish here. On the H1 chart, we had a bullish trend pattern and I was expecting the price to continue higher after pullbacks.
Cocoa H1(1 Hour) Chart Current Scenario
On the H1 chart after the bullish trend pattern, we got deeper pullbacks in the form of a double wave down. The price has also created a bullish hidden divergence between the first low that has formed at 2089 and the second low that has formed at 2123 based on the histogram of MACD indicator. Followed by a continuing bullish divergence between the first low that has formed at 2123 and the second low that has formed at 2112 based on the histogram of the MACD indicator, which we may consider as facts supporting the bullish view. The price has also broken above the most recent downtrend line and retested it, which we may consider as another fact supporting the bullish view. The price then delivered a fantastic move to the upside.
(Note: You can download the Hidden Divergence e-book here)
(Note: You can learn about a Killer Forex Strategy “Double Trend Line Principle” here)
After that, we had a contradictory sign on the H4 chart in the form of a bearish divergence as shown in the screenshot below and the price moved lower. Always keep in mind that when you are involved in a trade pay attention to the contradictory signs. When you find one just like this bearish divergence for example here (in the current trading timeframe or higher timeframes), then its better to get out of the trade with a small profit or big profit or small loss or break even because these are way better than a big loss. So always pay attention to this when you are involved in a trade.
This setup is yet another good example of why we should follow the hints the market provides us and take the right action. Because in this setup the market hinted at us with various facts supporting the bullish view. As you can see the correction happened in the form of a double wave down with a bullish hidden divergence followed by a continuing bullish divergence. And then the price which was moving higher broke above the most recent downtrend line, retested it and moved higher further. Most importantly there were no facts supporting the bearish view until the H4 bearish divergence came into play.
As traders we always have two choices, the first one is to fall in love with our analysis and try to convince the market and expect the price to move in the direction as per our wish. The second one is to follow the facts that the market provides us and make the right actions according to that. As you know the first option won’t help us and as you can see in the example above what happened when we followed the facts that the market hinted us and took the right action according to that.
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Happy Trading!
Yordan Kuzmanov
Chief Trader at the Traders Academy Club
