Technical Analysis The Darvas Box:- A Timeless Classic

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 market. Darvas read anything he could get his hands on. He gained an understanding of the fact that stocks are risky and taking profits is the key to riches.

Darvas began his trading career in the speculative Canadian stock markets and his first purchase led to a profit of more than 200%. His initial success was short-lived, and the rough and tumble Canadian markets soon took back his profits, and then some. Several years later, he turned to the New York Stock Exchange and brought a trading mentality to the market.

Trading Philosophy
Trading was not easy at that time. Stock investing in the 1950s required a full-service broker. Buying high-quality, dividend-paying stocks was the most common investment philosophy. Commissions were high, and investors favored dividend income over capital gains. Darvas brought his unique techno-fundamental theory of investing to this market, with no consideration of dividends and clearly defined stop-loss points.

To identify trading candidates, Darvas applied a distinctive fundamental filter. He looked for industries he expected to do well over the next 20 years. In the 1950s, electronics, missiles and rocket fuels fascinated the American public. Companies in these industries would benefit from revolutionary new products that would lead to exponential earnings growth.

In thinking this way, Darvas had learned from his study of stock market history that he could profit greatly if he could anticipate the next big thing. He notes in his book that in the late 1800s, railroad companies ruled Wall Street; a generation later it was automobile companies that represented an emerging technology. Investors were always on the hunt for the something new and exciting. To find stocks with the greatest potential, his research indicated that you needed to find the industries with the greatest potential.

The Strategy
From a developed industry list, Darvas would create a watch list of several stocks from each industry. Because of the commission structure of the day, he focused on higher priced stocks. With fixed commissions, the cost of trading, on a per share basis, declined rapidly as the price of the stock increased. While this was of no concern to the buy-and-hold investor, Darvas realized that a significant part of his trading profits would be lost to commissions if he was not careful. Modern day investors can look at stock price as a filter indicating that the company has some stability - very low-priced stocks often stay low for fundamental reasons in today's markets.

Armed with his list of trading candidates, Darvas watched for a sign that the stock was ready to move. The only indicator he used was volume, watching for heavy volume among his short list of trading candidates. When he spotted unusual volume, he would telegraph his broker and request daily quotes.

He was looking for stocks trading within a narrow price range, which he defined using a set of precise rules. The upper limit was the highest price a stock reached in the current advance that was not penetrated for at least three consecutive days. The lower limit was a new three-day low that held for at least three consecutive days.

After spotting the range, he would cable his broker with a buy order just above the top of the trading range and a stop-loss order just below the bottom of the range. Once in a position, he trailed his stop based on the action in the stock. In his experience, boxes often "piled up", which meant that they formed new box patterns as a stock climbed higher. Each time a new box formation was completed, Darvas raised his stop to a fraction below the new bottom of the new trading range.

Turning a Profit in Lorillard
In trading, a picture is worth a thousand words, and we can look at an example from Darvas' book to gain a clearer understanding of his method. In late 1957, Darvas was performing in Saigon and noticed a volume spike in Lorillard. He began following the stock closely by asking his broker to begin providing daily quotes.

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Source: "How I Made $2 Million In The Stock Market" (1960) by Nicolas Darvas

A. He identified Lorillard's industry and learned that it was selling a lot of Kent and Old Gold cigarettes. While not a technology stock, cigarettes were a growth industry at this time, before the Surgeon General warning appeared on every pack.

B. He bought 200 shares of Lorillard at 27½, as it broke above the box.

C. Unfortunately, his stop at 26 was hit a few days later when the stock price went back into the box.

D. Seeing continued strength reaffirmed his conviction that the stock was going higher, and Darvas repurchased 200 shares at 28¾.

E. Confident in his selection, Darvas bought another 400 shares at 35 and 36½.

F. Continued strength after the drop in February 1958 led to another purchase of 400 shares at 38.

G. To raise money to purchase another stock, Darvas closed his entire position at 57, for a profit of more than 60% in about six months. By comparison, the Dow Jones Industrial Average gained about 7.5% over that same time frame.

The simple Darvas used to profit from Lorillard can also work in the current markets. The internet has replaced the telegraph favored by Darvas, and also provides real-time quotes, eliminating the need to wait for Barron's to be delivered on Saturday morning. Spotting high volume breakouts is relatively simple to do, and profits like Darvas made are possible if traders apply his disciplined approach.

In Summary
Much of Nicholas Darvas' success stems from his confidence in his trading strategy. He became proficient at managing risk and taking his profit off the table before the position had the chance to reverse.

Michael Carr can be contacted at Dunn Warren Investment Advisors
 
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I have no idea as to the character of Darvas. His book, true or not, confirmed to me that one could learn by their own observation. I understand he taught the little guy to start protecting their accounts with stops. I understand the court dropped the charges and that the prosecutor spread the story and Life Magazine ran with it. Prosecutors never overstate their cases and the media never gets it wrong. Let us not forget the setup with the highest probability of all that Darvas taught us. Write a book about how to make millions and make millions. Darvas was a dancer...but he was also an economist trained in Hungary. He is said to have read over 250 books on trading and shared his suggested reading list. Not all of these things are bad. If we rejected everything that had a bad spot, we'd miss out on a lot of good stuff.
 
How to become a skille trader?

Forex is most popular and profitable business over the world.here people can earn lots of money.on the other hand most of the people are looser.why?can any one tell me why most of the people are looser this market?
 
Forex is most popular and profitable business over the world.here people can earn lots of money.on the other hand most of the people are looser.why?can any one tell me why most of the people are looser this market?



Who said "even a fool can ask a question that the wisest man cannot answer"?

I know and understand the meaning of this statement, but I do not know the answer to your good question. :smart:
 
It is the nature of man to die; he begins to die even as he is born. Perhaps it is natural for a finite being to trade an account to its demise. Somehow a few people learn how to trade contrary to the finite nature of their being in a more infinite way...so their account grows as they continue to die. In the end the 2% that win will join the 98% that do not win...none can take it with them :)
 
It is the nature of man to die; he begins to die even as he is born. Perhaps it is natural for a finite being to trade an account to its demise. Somehow a few people learn how to trade contrary to the finite nature of their being in a more infinite way...so their account grows as they continue to die. In the end the 2% that win will join the 98% that do not win...none can take it with them :)

The markets capacity will always be infinite. Our resources to play with the market will always be small and finite. Our appetite for what the market yields is always infinite. This is the problem.
 
It is the nature of man to die; he begins to die even as he is born.

This statement is false one for me.

Nature of man is to live as with all other life forms. He begins to live as soon as he is born.

I like to think of life as a journey with a view to relish and not the end destination.

Nature is not death. Nature is the circle of life. :)
 
Both views can be correct but also wrong. The first day of life is clearly the first day's progress towards death, as in the absence of life there can be no death. Also, we uniquely have fore-knowledge of our own mortality.

But the life of the individual is not a journey towards death or anything else, it is just a journey, with no unique destination: though it is certainly linear - it starts at A and ends at between B and Z.

Life for our eco-system and strands of it can be seen as cyclical, but not circular, the progression never returns to the most recent starting point.
 
Both views can be correct but also wrong. The first day of life is clearly the first day's progress towards death, as in the absence of life there can be no death. Also, we uniquely have fore-knowledge of our own mortality.

But the life of the individual is not a journey towards death or anything else, it is just a journey, with no unique destination: though it is certainly linear - it starts at A and ends at between B and Z.

Life for our eco-system and strands of it can be seen as cyclical, but not circular, the progression never returns to the most recent starting point.


When a man swims he gets wet. Objective is not to get wet but swim. Objective, purpose and nature of man is to live. Moreover, first day of life - a baby and even a child has very little or no awareness of death.

In fact man lives as he is never going to die. Immortality is sought as embodied in the holy grail. It's all a load of myth but never the less it's what man craves. Man has even created God to prolong his life in eternity. False as it maybe but it is facilitate his life for ever. Death is pushed as far away in his mind as he can.

Nature is the circle of life. Any individual species may have a starting and end point within nature but nature as describing that circle does revolve as in the seasons repeating in time.

Saying and creating fancy words like it is the nature of man to die; he begins to die even as he is born doesn't make it so. Child growing up is developing and shouldn't be considered as dying.
 
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We've just published a new T2W article called "The Darvas Box:- A Timeless Classic " by Michael Carr.

Quick Summary: Michael Carr discusses the Darvas Box approach to trading and why it is still relevant in the markets of today.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.

the darvas box is an interesting strategy ..........good read :smart:
 
When a man swims he gets wet. Objective is not to get wet but swim. Objective, purpose and nature of man is to live. Moreover, first day of life - a baby and even a child has very little or no awareness of death.

In fact man lives as he is never going to die. Mortality is sought as embodied in the holy grail. It's all a load of myth but never the less it's what man craves. Man has even created God to prolong his life in eternity. False as it maybe but it is facilitate his life for ever. Death is pushed as far away in his mind as he can.

Nature is the circle of life. Any individual species may have a starting and end point within nature but nature as describing that circle does revolve as in the seasons repeating in time.

Saying and creating fancy words like it is the nature of man to die; he begins to die even as he is born doesn't make it so. Child growing up is developing and shouldn't be considered as dying.


guys - you really need to get out more :LOL:
 
Here is the formula in Easylanguage of an Indicator inspired by Nicolas Darvas' technique, which plots supports and resistances:


but when I insert it in the chart, the image becomes very narrow, if someone can solve this problem:



before inserting the indicator, the chart has these dimensions:

 
Here are the Darvas Box formulas for Tradestation , Amibroker, eSignal, etc....:


Here are more Metastock formulas related to the Darvas method:




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A small manual dedicated to the techniques of Nicolas Darvas can be read here:

 
Here you can download 3 Excel files with Darvas Boxes:


web hosting images
 
Here is explained the technique of Nicolas Darvas:



Here is a video that explains the technique of Nicolas Darvas (you can find more on youtube):

 
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