The March 2016 contract of Cocoa futures (CC) traded as low as 2650 in February, before rallying to a high of 3368 in July. After July the price moved in a triangle pattern--a converging price action pattern where the price makes lower highs and higher lows.
On November 12 the price closed above the upper trendline of the triangle pattern, signaling an upside breakout and a possible further advance. On November 17 the price hit a new high of 3395, eclipsing the old high from July. This is another sign of strength.
Between November 16 and November 19 the price has consolidated around that high, forming a small range just above the old high. Such consolidations provide good trading opportunities.
The trend is up, and the price action appears strong, but a move lower can't be ruled out (because the price is still in a resistance region). The highs and lows of the consolidations are the trade levels--a move below 3335 is a short trade while a rally above 3395 is a long trade.
Figure 1. March 2016 Cocoa Futures Daily Chart
This entry technique sometimes require more than one entry before catching a bigger move. This is because there could be a false breakout (price breakouts one direction, but then quickly reverses and breaks out in the other direction) or the consolidation continues, slightly expanding the current range of the consolidation.
Because of the potential for multiple entries a small stop loss is used, typically half to two-thirds of the consolidation. Since the consolidation is 60 points wide (3395-3335) the stop is 30 to 40points.
If a short trade triggers, targets are 3250 followed by 3100 if the price keeps falling. 3100 is the bottom of the old triangle which may still act as a support area.
For a long trade the initial target is 3525. The target based on the multi-month triangle pattern, that was recently broken, is approximately 3650.