A few weeks
ago, I came across a book named “How I made $ 2 million in the Stock Market “.
At first I was skeptical of buying it as I thought it would talk about get rich
quick thing or maybe the author would only be talking about how great he was so
that he made this fortune in such a short span of time. But I am glad I ordered
the book and I was hooked as soon as I started reading it!
Read : Best Stock Market Books For Trader and Investors
Read : Best Stock Market Books For Trader and Investors
Nicolas
Darvas was extremely famous in the Stock Market realm not only because of the
fact that he made $ 2 Million in the stock market, but because of the way in
which he made it. He had no prior knowledge of the market and was a
professional dancer and continued to pursue his dancing profession and he used
to tour the world for the same even when he was carrying leveraged open stock
positions. As any other trader, he also went through a lot of ups and downs and
lost a lot of money initially and even thought of quitting the markets.
He also,
like most of us, started trading with a gambler’s mindset and tried to make
quick money and got attached to his trades. It resulted in him holding on to
his losses for longer and quickly booking out his profits. He was affected by
all the news flow and quickly jumped in and out of trades and bought shares by
following the tips of his broker and friends.
He even tried to sit in the broker’s office and traded from there only
to realize later that whenever he was close to the action, he lost the most.
He was
thankful that his career made him tour the world and he eventually traded just
by following the prices at the end of the day which he got via the telegrams
that he had instructed his broker to keep sending to whichever part of the
planet he would be. He was essentially
following the “eod” or the end of day trading technique, in which traders
usually ignore all the noise that goes on during the market hours and look at
only the closing price at the end of the day and trade accordingly.
What
basically propelled his success was his findings that the strong stocks kept
rising and the weaker ones kept falling and he just had to keep riding the
rising stocks and book his profits only by trailing the stop loss. He was no
longer interested in buying for 2-3% profits and wanted to ride the trend till
it lasted. His way of buying the momentum stocks, gave birth to the famous Box Theory which is still widely used by
traders all over the globe.
Let me try
to explain the theory with the help of a few Indian stocks.
This is
Daily chart of Icici Securities. As you can observe, stocks move as if they are
climbing stairs. Nicolas used to monitor the closing prices and used to make a
box which consisted of the highs and lows of that range or box.
Whenever the price used to leave a particular box and moved to a higher box, he used to buy it or even added position if was already holding it. He kept buying whenever the stock moved to a higher box. This simple technique made him win big when he was winning and he lost little when he was thrown out of a stock, that is, when the low of the box was broken.
Whenever the price used to leave a particular box and moved to a higher box, he used to buy it or even added position if was already holding it. He kept buying whenever the stock moved to a higher box. This simple technique made him win big when he was winning and he lost little when he was thrown out of a stock, that is, when the low of the box was broken.
This is
Daily chart of Abbott India. It also gave a lot of opportunities to add
position in it and is still continuing to move in boxes. This is a sign of a
good stock as it is not closing below the low of the current box or range.
I hope this
article gave you an idea of how Nicolas Darvas traded and maybe you can try to
implement this simple strategy into your own trading.