Beginner's guide to Darvas Box. Includes lesson on Darvas box theory, plotting, trading strategies, and practical trading tips using the concepts.
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Price Trends: [ Ссылка ]
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Disclaimer: None of the following should be taken as an investment advice and are for educational purposes only. Stocks, forex, and crypto currencies carry inherent probability of losing money. Trade at your own risk.
Once we know how to trade with the trend, we need to maximize the efficiency of our entries. Darvas Box is one of the useful strategies when the price is on an uptrend.
Welcome. In today’s session, we will learn the following. The history and principles behind the strategy. How to plot the Darvas Box. How to trade using the Darvas box. And practical tips using the concepts.
Darvas Box is a strategy developed by Nicolas Darvas. He is the author of the book “How I made 2 million dollars in the stock market.” His strategy provides ideal entries when the stock is on an uptrend.
The principle behind the strategy is that the price tends to make a range within a primary trend. The price doesn’t go on straight line, as there are momentary pauses causing the price to move within a range. This is called secondary trends.
Using the linear regression, the green line shows us the primary trend, while the blue lines shows the secondary trends. These secondary trends are short term sideways movement within a primary trend. These shorter-term trends can be visualized using boxes we call as Darvas Box.
In plotting the Darvas Box, we need to look for the highs and lows within a short-term sideways movement. The highs will be the upper boundary of the box, while the lows will be the lower boundary. In this chart, we can plot two boxes. Once we identified the highs and lows in the chart, we can now draw the boxes.
Now that we plotted our Darvas box, the first method we use to profit from this strategy is the D B breakout method. Buy once the price breaks above the upper boundary of the box. We can minimize the risk by buying in tranches. Add more position if another D B breakout takes place.
These price candles are the entry points. In this chart, the price moved 297% after the first entry point.
Another strategy we can use is called the lower D B method. Once the box was created, divide the box into two symmetrical boxes horizontally. We call the two as upper box and the lower box. Buy near the base of the lower D B. This strategy has lower risk than the D B breakout method.
Darvas box is most effective when the price is trending up. In early stages of the primary trend, we can use some trend indicators to help us identify a potential long-term trend. Here, a Darvas box was formed earlier in the trend. The trend was identified in two ways. First, the moving averages formed a golden cross. Second, the Mac Dee histogram was above zero. Two indicators confirmed the uptrend. A second entry was made when another box was formed while the moving averages are aligned in an uptrend, and the Mac Dee histogram is above zero.
Please check the description about the links to the lesson on price trends and trend indicators.
Like any other trading strategies, this doesn’t guarantee a 100% success. Protect your capital by cutting losses quickly. And once a new Darvas box is formed, you can place another entry. Here, the trend is back to its momentum when the Mac Dee histogram went back above zero, allowing a new entry point.
When the price shows a strong momentum, never be tempted to buy carelessly. Always wait for a box to form. In this trade, the price is on a strong momentum. But in order to minimize the risk, we waited for the right entry. It was bought on the D B breakout.
And finally, remember that Trading is not perfect, so always manage the risk by carefully planning ahead the trade. Always consider the portfolio allocation size. And also plan your stop loss before the trade.
