How to Trade like Nicolas Darvas


                                                          





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

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.








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.





Comments

  1. Replies
    1. This is an interesting article.Thanks for Sharing. I will explore more on it.Your web site name is very interesting..Trade like a monk...beautiful

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    2. Does this work in negative direction as well ?

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  2. Thanks for sharing. Good learning

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  3. Great one. Even I have recently completed reading the book which is truly amazing and inspirational for budding traders

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  4. Very nice article.
    Thanks sir.

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  5. along with box, darvas was also closely following volume pattern.. without volume, theory is incomplete and useless..

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  6. The problem with this strategy is, there are so many stocks which create boxes and give breakouts but you never know which one would continue creating these type of patterns. What are your thoughts in it?

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    1. Ya we cannot know in advance if they will continue making these patterns , that's why we just have to follow the trend and keep riding till the box is not broken from below...

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  7. Hello sir,
    Very Informative article, what about stoploss??How to place it using this method?

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  8. Really Harneet it served as a refresher course, short and crisp. Keep doing the nice work , God Bless You!!!!

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  9. Very Nice Article, Harneet Sir :)

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  10. Very Nice Article, Harneet Sir :)

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  11. Very nice and simple way of riding the trend

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  12. Nice article. Sir can you please write and article on Stop losses and how to deal if we stop out and trade again moves in favorable direction

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  13. what should be the range of the box. Meaning how do we define the low and highs

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    1. Range depends upon the lows and highs in a range.. more the touch points, the better it is...

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  14. Good Insight for part time and amateur traders

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  15. wonderful rticle, sardarji....
    so simple but so effective...
    thnks for sharing

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  16. Very good explanation in very simple way thanks a lot sir

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  17. Dear Harneet Singh. I'm very interested in options trade and although not new to the markets have hardly traded options. Pls advise. The.
    Madhusudan

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  18. Thanks. You make it sound very simple. Now the question is " why people do not implement it despite knowing and its simplicity"?.

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  19. As usual very good stuff in your website.

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  20. Nicely explained in Brief..Thanks!

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  21. great article you have put his whole knowledge in 1 page. I met him few years back in Sydney he did not explain as well as you wrote it.

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  22. Good to see the indian stocks with darvas theory explained. Thanks Ji.

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  23. What do you think about applying the same to Index Mutual Funds?

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  24. nice Sir ji, Best learn from u that wait and watch carefully and Patiently.

    Thank you for Valuable learn

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  25. Great learning for me. Thank you Sir. .

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  26. Awesome, and Simplified , no Indicator , Nothing. Love It.

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