Trade sheet below. Charts courtesy of IG Index and the excellent Trading Economics.
TRADE SHEET
Short Cocoa, 15/12/09

Trade Description
Short March 2010 London Cocoa from 2264.

Details

Technicals
Cocoa is back at the level of its long-term peak in the commodity spike of mid-2008. It has recently failed to break this level again. Now the price has again run up to it, and seems to be failing to break through.

Fundamentals
Even the FT has been reporting about tight supply in the cocoa market owing to problems in Cote D’Ivoire. I suspect that much of this is now in the price. The previous price highs suggest that demand falls away with cocoa at these high levels.

Stop Position
2400. Loss-to-stop = 0.26% of capital. Stop placed above the previous peak at a level suggestive of a breakout above the long-term trading range.

Trading Plan
Pyramid break below 2150 and 2050.

Entry Checklist
Are you trading against the trend? Yes — trading long-term range.
Is there a fundamental story? Yes — contrarian.
Is there a technical buying opportunity? Yes.
Are you placing your stop at a point where the market would tell you you were wrong? Yes.
How much conviction do you have? Medium — strong range but contrarian bet.
Does the risk accord with the conviction? Yes — max risk at present is 0.5%
Do you have a plan? Yes.
If you are wrong, will you live to fight another day? Yes.

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