Article The Darvas Box:- A Timeless Classic

T2W Bot

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In the late 1950s, Nicolas Darvas was one half of the highest paid dance team in show business. He was in the middle of a world tour, dancing before sell-out crowds. At the very same time, he was on his way to becoming a long forgotten Wall Street legend, buying and selling stocks in his spare time researching only in Barron’s weekly newspaper and using telegrams to communicate with his broker. However, Darvas turned a $36,000 investment into more than $2.25 million in a three-year period. Many traders argue that Darvas’ methods still work, and modern investors should study his 1960 book, “How I Made $2 Million In The Stock Market”. Read on as we cover the Darvas Box trading method.
Darvas Who? The path Nicolas Darvas took to stock market riches is unique. He fled his native Hungary ahead of the Nazis. Eventually, he reunited with his sister and they began dancing professionally in Europe after WWII. When he wasn’t performing, he spent countless hours studying the stock...

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tomorton

Legendary member
8,137 1,226
Classic demonstration of how a successful formula doesn't need to be complicated, though the search for exit criteria has to continue.
 
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pennycapitalist

Junior member
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Besides a method that works, what I liked about the Darvas experience was how closely his trading journey mirrored my own. He made all the same mistakes in trading that I did, but began to get it under control. Because he had a much higher income, his experience needed no long periods of capital recovery as did mine. After listening to and trading with all the expert advice, he finally realized that was the way of failure. Then he used his own observation, analyzed one of his rare wins, and started repeating what worked for him.
 

DionysusToast

Legendary member
5,963 1,499
I thought it was fairly well known that Darvas lied about the money he made.

His book was entitled "How I made $2 Million In The Stock Market" but

- He lied about the amount of money he made in the book
- He did this partly by not disclosing many of his losing trades in the period discussed in his book
- Many of his winning trades actually didn't conform to the system in his book

The amount of money he made in the period discussed in his book was $152,000, not $2 million. Darvas claims to have initially made a quarter of a million dollars from just $37k - but he failed to mention that he'd actually borrowed over a million dollars to trade with.

So the $152k he made wasn't built up from $37k but from a million dollars of borrowed money. Even then with this 15% return, it appears for some of it (not sure how much), he wasn't following his own methods...

See attached PDF.

https://www.ifa.com/articles/How_I_Made_2Mil/

"The book was re-published last year and a newsletter touting Darvas’s techniques continues to be peddled to naïve investors. While it is clear that Darvas did not make $2 million in the stock market, it is entirely possible that he made a comparable sum selling books to benighted people who actually believed that some benevolent individual who discovered the secret to attaining fantastic wealth in the stock market would be happy to share it with the whole world."

Ouch!
 

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tomorton

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Interesting, thanks DT.

Still sounds like a sane method, so could it work better for one of us than it did for Darvas?
 

Pat Riley

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794 178
Interesting, thanks DT.

Still sounds like a sane method, so could it work better for one of us than it did for Darvas?

Isn't it just another breakout method? 3 day low or high breach? Same as Donchian (6 week channel?). You'd think if it, or any, of these methods worked there'd be more people using them.
@tomorton, why don't you consider running a journal using this method on a test case?
 

pennycapitalist

Junior member
39 15
Some people like Dan Zanger and William O'Neil seem to make money with modern versions of the Darvas Box. Come to think of it, both of these people also sell their secrets, William O'Neil in a massive way.

Livermore, almost everyone's hero, blew out his life account!

As a native American, I can see the truth in a good story, even when it is not entirely true. I seem to remember Darvas, like a lot of gamblers, counted his wins apart from his losses. Anyway, had he just turned over his earnings to a money manager, he wouldn't have made the $153,000. My brother-in-law who grew up during Darvas' time had a nice fat trust fund churned into nothing by a large Texas Bank. That was legal in those days.

Darvas found an edge on his own even if it wasn't as sharp as he wanted us to believe. That's one truth we can learn from his book. Another is to not believe every thing we hear. That one we have to learn over and over again.
 

tomorton

Legendary member
8,137 1,226
Isn't it just another breakout method? 3 day low or high breach? Same as Donchian (6 week channel?). You'd think if it, or any, of these methods worked there'd be more people using them.

@tomorton, why don't you consider running a journal using this method on a test case?


Got enough on my hands really Pat but I might add this to my regular chart checks for an entry signal now and then if the usuals fail me.
 

Pat Riley

Established member
794 178
Got enough on my hands really Pat but I might add this to my regular chart checks for an entry signal now and then if the usuals fail me.

It was just a thought tomorton as you seemed motivated to look into it. Highly unfashionable these days as it was used on the dailies. Nowhere near fast enough for today's busy traders. Then again, there seems to be a tendency to take any system and religiously preserve all the settings - except the timeframe - which miraculously is expected to work as effectively in the traders chosen timeframe as it did in the developers - as if this was a minor point.
 

pennycapitalist

Junior member
39 15
One might need to hurry if they want to resurrect the exact Darvas casket from the grave. Wire services are hard to find these days :)
 

timsk

Legendary member
7,345 2,136
Some people like Dan Zanger and William O'Neil seem to make money with modern versions of the Darvas Box.
. . . And the thing that unites them all is that they managed to unearth massive growth stocks. William O'Neil developed his 'CAN SLIM' strategy and Dan Zanger achieved it by trading tech stocks right up to the dot com bubble bursting in 2000 whereupon, allegedly, he lost $5 million in a single day.

I read Darvas years ago and I forget which were his really successful trades - Polaroid was one I think - and possibly Lorillard referenced in the article - may be another. Whether it was luck or skill is open to debate but, essentially, he made the bulk of his money in just three or four stocks. Traders of today attempting to repeat the same trick will struggle to find major growth stocks by scouring the constituents of the FTSE 250 or the S&P500. There will be massive growth stocks out there somewhere obviously, but they are unlikely to be lurking in the major indices or to be uncovered using a simple TA pattern. Additionally, as the article makes clear, Darvas placed great emphasis on heavy volume when price was trading within a tight range. I'm not a volume expert - far from it - but I suspect Darvas' simple approach to volume wouldn't work very well in today's markets. The reason being that trading today is a totally different ball game to what it was back in Darvas' day and volume isn't so straightforward to interpret now as it was back then.

For me, the key thing to learn from Darvas is not so much the box technique itself, but that he developed a simple methodology that he stuck to rigidly. The lesson has more to do with discipline and focusing on risk and trade management - than it does on entry technique - which I doubt is any better or worse than any other.
Tim.
 
 
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