# The Darvas Box Trading Method



## kam75 (11 December 2008)

The Darvas Method is my favorite trading method and one I've been using for the past 7 years to make consistent returns from the market.  It involves the use of a unique setup that integrates a volume spike with a rising stock price into a powerful trading system that incorporates entry timing, stop loss placement and exit timing. It is the creation of the legendary trader Nicolas Darvas in the 1950’s and is used to capture long term growth of leading stocks in the strongest industry groups.  

For anyone that has not applied this method in their own trading I suggest you have a read of Darvas's book, "How I Made 2 Million in the Stockmarket" -it's a timeless classic containing invaluable market lessons and insight.

For a stock to qualify as a potential Darvas trade, it first has to exhibit a proof of changed behavior in the form of a recent volume change of at least a 400% increase compared to the average daily volume for the past few weeks. The stock must also be rising in price and make a new yearly high. The Darvas Box upper and lower boundaries will then form if this high is not touched or penetrated for the next 3 consecutive trading days followed by a retracement low that’s not touched or penetrated for a further 3 days in a row, as shown in the picture below. Darvas tells us that sometimes the top and bottom of the box may form on the same day. In such a case, the requirement is that neither the high nor the low of that day are touched or penetrated for 3 consecutive trading days.







Once a box forms, I place a buy stop order to purchase my stock the moment it pushes through the top of the box. At the same time, I enter an automatic stop loss order just below the bottom of the box to protect my position. As the prices increase and new boxes form, I trail my stop loss just under the bottom of each new box to lock in the profits. One aspect of this trading method that made Darvas so successful is the pyramiding of position by buying more stock on the breakout of subsequent boxes – a very powerful technique to maximize returns in a winning trade!

best regards


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## MRC & Co (11 December 2008)

And what happens if it breaks out and then goes higher and comes all the way back down.  You don't trail your stop unless another box is formed above?


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## tech/a (11 December 2008)

Very few valid setups in the last year or so.
Certainly not profitable in the last year to the long side.
A perfect method for a bullish market.
Darvas never traded short and Ive never heard of anyone using the method to trade the short side.
From a quick browse of charts there seems to be potential----would be interesting to see what the "setup conditions" would be.

What most* DONT* point out is that Darvas made his fortune from a few OUTLIER moves whilst trading his method.Texas Instruments was one.
Netting near enough to $500K
Thiokol holdings was another where he gained an amazing 3 for one share split netting $862,000.

The true profit in any method are those rare outliers.
Get on a couple and a very mediocre method can look sensational.


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## johenmo (12 December 2008)

Darryl Guppy looks at this in his TREND TRADING book.  Has a few changes to make it "modern Darvas" - says the conditions aren't the same so the classic Darvas can't apply as well.  But trends figure prominently.  So no uptrend = hard times!!  

And a few bug wins helped to make his money as the others have said.


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## BBand (12 December 2008)

Hi Kam,
Nice to see that you have found an approach that works for you

Darvas was brilliant! 

His profession involved him travelling to foreign countries where he had no access to charts for his TA - so he developed the Darvas box method of trading, which allowed him to manage his stocks using closing prices that were "faxed?" to him each night

From what I remember it has clear entry and exit rules - no options, which is a big plus for some of us.

I would think that depending on the depth of the box - you could be giving back a large chunk of profit if the stop is hit.

I'm not a trend trader (usually), but his method looks completely logical to me

Also, I do not see why his method can't be used in any trending market, just modify the rules to suit.

Peter


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## tech/a (12 December 2008)

> I'm not a trend trader (usually),




This has me interested.
Price must travel from A to B for there to be a differential in price and hence a profit.

1 tick is a trend in a direction.

So how then do you trade?


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## MRC & Co (12 December 2008)

Fark me, talk about semantics.


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## kam75 (12 December 2008)

MRC & Co said:


> And what happens if it breaks out and then goes higher and comes all the way back down.  You don't trail your stop unless another box is formed above?




It depends on how it breaks out.  If I get a massive breakout to the upside, I will raise my stoploss immediately to just below the top of the box.  If its sluggish, I may give it more time or exit the trade.  I follow the rules Darvas states in his book, plus a few of my own.  I have rules for profit taking, for example if it gives me an x% amount of profit in a certain time, I will sell some of my holdings.  Othervise I will follow the trend and add more to my position on the breakout of new boxes while trailing the stop up under each new box.

Darvas does indeed work best in trending markets.  My last Darvas trade was back in June.
regards


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## BBand (12 December 2008)

Gee tech

You are smart !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


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## weird (12 December 2008)

Alot could be learned from studying the Darvas method ... trade with the trend, define your risk, add to winning positions ... I wouldn't get too caught up with trying to replicate the original box or labeling oneself as a Darvas trader ... it is a smart setup though, one that could be adapted a many number of ways.


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## tech/a (13 December 2008)

BBand said:


> Gee tech
> 
> You are smart !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!




Thats it?
I'm still interested in how you trade?


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## It's Snake Pliskin (13 December 2008)

This is a good thread worth reading even if you know everything rather unlike me. 
BB interested to hear your style.


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## BBand (14 December 2008)

Hi Tech, Snake
In response to your request:

I have been retired now for a good number of years
I trade my superfund
I only trade long - I could short using CFD's  but then I have to use GSL's, so the way I trade makes CFD's too expensive
I prefer stocks in the $0.02 to $5
I have traded many different ways over the years - but now I prefer breakout trading
I have a detailed trading plan that tells me what to do in ant given situation that I have experienced before
I am a discretionary trader
Ihave strict entry rules - exits are flexible, depending on what the market is offering or I may exit for personal reasons (i.e. loss of interest and not manageing my trade(s) properly or maybe family business.

The tools which I use are:
Indicators, each one used for a specific purpose - they are the dominant tool - my scans are based on them as is my entry, management and exits.
Price and time analysis (volume I use for entry sometimes and as a warning that the move may be weakening)

My trading style
I JUST TRADE A PRICE MOVE!, or if I'm fortunate MULTIPLE TIME FRAME TRADING - ii.e. if the move manifests onto the next timeframe up then I'll consider managing the trade from the higher time frame - I am still trading the higher time frame move - but I am in effect trend trading where referred back to the initial time frame

Thats it. easy

I used to be active in the markets, but over the years I,ve found things to do that are more important

In fact this year I have not done a great deal of trading although I still go thro the motions of trading - still do the nightly scans, eyeballing charts and placing bets with myself.

So this year I have had some spare time, and thus the occasional post here.

Snake
So now that I have made the effort to reply to your request, I think it only fair that you tell me how you trade (in more than one line 

Have a nice day


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## BBand (14 December 2008)

PS
I forgot to mention the most important fact:

My objective is to get in at the start of a major move and to exit immediately from any move that is going nowhere. (this style is applicable to Techs outlier thread)

Also on any trade, I do not risk more than 1/2 to 1% of my capital and the maximum risk of all open trades is 3%


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## It's Snake Pliskin (14 December 2008)

BBand said:


> Hi Tech, Snake
> In response to your request:
> 
> I have been retired now for a good number of years
> ...



BB, 

Yes those GSL's are expensive aren't they.

I see you are doing it similar to me. Timeframes meld. I don't sit at the computer daily looking at charts as I desire to have more free time to enjoy life. 

This year has been a bit of a waste due to no shorting allowed so I took some time off to focus on a business venture which is still being worked on. But now I am starting to search for some stock that may be turning. But this is hard at the moment as the whole world seems too stuffed and up itself to know what is really going to happen. 

Position investing FX is worth the trouble as there is money to be made if you are financed in Yen, which I am, so just looking for FX opportunities. 

I like to swing trade stocks and CFD'S but the lack of volume this year has been quite pathetic. Recently I discovered another trend following technique which I am researching. So this year has been part of the learning curve which always is there. 

Cheers..


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## tech/a (14 December 2008)

> I'm not a trend trader (usually)




So you are in fact a trend trader. 
Was intersted in seeing how you traded "Usually".
Ie not a trend trader.


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## BBand (14 December 2008)

Hi Snake,
I am also interested in FX, but I do not think I am allowed to trade them (Superfund)

You can make a good return from short duration trades - the lowest timeframe that I could use would be around 1hour, . Anything below that, especially sub 5mins - I just cannot handle.

If you like swing trading - have a look at Bollinger Bands, they offer very good dynamic support and resistance. If you use 2 std. devs. then statisically 95.4% of your data is always within the bands, if you use 3 std.devs. then 99.7% of price action will be contained within the bands.

If BBands interest you regarding swing trading- then use them when the bands are wide apart and not diverging, but more or less running horizontal.

Bollinger bands are the most predictive tool that I know of and can work across all market conditions.

Probably the most important part of my trading analysis , is using multi timeframe analysis - get that right, then you are playing with the team most likely to hit a home run - you may not be the player to hit it, but all the conditions are in your favour.

Nice to know that you are on much the same wavelength as me (I don't know if thats a good thing, but at least we are not losing money - our good times will return, sometime....................)

The above is probably "old hat" to you - but it may be useful to others.

Hope your new trend trading method works out well.

Testing, testing, testing


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## kam75 (14 December 2008)

weird said:


> Alot could be learned from studying the Darvas method ... trade with the trend, define your risk, add to winning positions ... I wouldn't get too caught up with trying to replicate the original box or labeling oneself as a Darvas trader ... it is a smart setup though, one that could be adapted a many number of ways.




It took Darvas about 6.5 years since start, before turning his 25k into over 2 million in 18 months.  So far, I haven't been able to replicate this in my own trading but I sure as hell would like to hear from any trader that has or come close.  Darvas took a big but calculated risk in his trades and managed this risk using automatic stop loss orders placed with his broker.


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## BBand (14 December 2008)

Hi Tech,
No I do not classify myself as a trend trader - on the timeframe that I am working from, I will always be trading the breakout move on that timeframe

The move up from the initial timeframe is dependant on it manifesting onto the higher timeframe - and I do not move up if the move on the lower timeframe happens to be at a time where the price on the next higher timeframe is already in a well established move - I want to move up when the "move" in the next higher time frame is just starting - and the price on the next higher timeframe is in the process of forming a breakout

I am just trading the breakout move i.e. I am a breakout trader.

However if I have moved to a higher timeframe and trading its breakout move - then once this is well underway - and I relate back to the initial timeframe, then I am trend trading with respect to the initial timeframe !i.e. the move on the higher timeframe is the summation of the moves on the initial timeframe.

I define a move with say reference the ADX(14), I do not use it but it will do for demonstation.
When the ADX starts to rise, price is on the move, when it turns over - the move is over
Simple maths (the ADX is the summation of DI+ and DI-)

Hope this helps to clarify my statement

Hi Kam,
Sorry for hijacking your thread


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## tech/a (14 December 2008)

> I am a breakout trader.




Oh I see.


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## MRC & Co (14 December 2008)

tech/a said:


> This has me interested.
> Price must travel from A to B for there to be a differential in price and hence a profit.
> 
> 1 tick is a trend in a direction.
> ...




Sorry tech.  I don't get your point, what are you getting at exactly with these comments on this thread?  According to your definition, everybody is a trend trader, so there is no need to even go on, unless we want to debate over what our individual definitions are of trend trading.  Seems like a bit of a waste of time.


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## It's Snake Pliskin (15 December 2008)

BBand said:


> Hi Snake,
> If you like swing trading - have a look at Bollinger Bands, they offer very good dynamic support and resistance. If you use 2 std. devs. then statisically 95.4% of your data is always within the bands, if you use 3 std.devs. then 99.7% of price action will be contained within the bands.
> 
> If BBands interest you regarding swing trading- then use them when the bands are wide apart and not diverging, but more or less running horizontal.
> ...




Thanks for the perspective on BB's. 
Cheers..


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## Sebforliberty (24 July 2015)

kam75 said:


> The Darvas Method is my favorite trading method and one I've been using for the past 7 years to make consistent returns from the market.  It involves the use of a unique setup that integrates a volume spike with a rising stock price into a powerful trading system that incorporates entry timing, stop loss placement and exit timing. It is the creation of the legendary trader Nicolas Darvas in the 1950’s and is used to capture long term growth of leading stocks in the strongest industry groups.
> 
> For anyone that has not applied this method in their own trading I suggest you have a read of Darvas's book, "How I Made 2 Million in the Stockmarket" -it's a timeless classic containing invaluable market lessons and insight.
> 
> ...




Hello, sadly i can't see your chart, i would like to know if each boundarie is based on the closing price or on the higher/lower intraday price ?
Thanks !


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## pixel (24 July 2015)

Sebforliberty said:


> Hello, sadly i can't see your chart, i would like to know if each boundarie is based on the closing price or on the higher/lower intraday price ?
> Thanks !




You can read the details here: http://www.nicolasdarvas.org/
But beware: Darvas made his profits during an exceptional period of Bull Market conditions. When that ended, so did his run of profits, and he instead derived his income from talking about and commercialising his method.


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## tech/a (24 July 2015)

pixel said:


> You can read the details here: http://www.nicolasdarvas.org/
> But beware: Darvas made his profits during an exceptional period of Bull Market conditions. When that ended, so did his run of profits, and he instead derived his income from talking about and commercialising his method.




Brains and Bull markets.
I'm sure that's where mine come from!
Which in a bull market is fine.

Mind you if you can find good moves even
on a daily basis like the DAX HSI etc it works 
very well there as well.


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## pixel (24 July 2015)

tech/a said:


> Brains and Bull markets.
> I'm sure that's where mine come from!
> Which in a bull market is fine.
> 
> ...




True - the problem lies in identifying a trending timeframe. Get that right, and any trend-following technique will be successful - until the trend ends.

btw, I wonder what has become of the starter of this thread. His website no longer exists, the domain is up for sale, and he hasn't been posting since 2010...


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## AlterEgo (24 July 2015)

Sebforliberty said:


> Hello, sadly i can't see your chart, i would like to know if each boundarie is based on the closing price or on the higher/lower intraday price ?
> Thanks !




The Darvas method uses the highest & lowest intraday prices to set the top and bottom of the box.


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## tech/a (24 July 2015)

AlterEgo said:


> The Darvas method uses the highest & lowest intraday prices to set the top and bottom of the box.




Or you could trade a 15 min chart and do the exact same thing using a 1 min chart (15 bars).
3 min with a 30 min etc etc


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## Sebforliberty (24 July 2015)

AlterEgo said:


> The Darvas method uses the highest & lowest intraday prices to set the top and bottom of the box.




Ok thank you AlterEgo ! One more question, what about the stop loss ? in the book, he says :

 " i placed my stop losses one fraction below the ceiling through wich the stock brock through "

What does mean one fraction ? 1% ? (i'm french...) 



@Tech/a : Darvas isn't a day trader, he is a swinger, he is only daily charts.


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## pixel (24 July 2015)

Sebforliberty said:


> Ok thank you AlterEgo ! One more question, what about the stop loss ? in the book, he says :
> 
> " i placed my stop losses one fraction below the ceiling through wich the stock brock through "
> 
> ...




"A fraction" is another word for "a small amount" - could be a tick or two. In French you'd say _"un peu"_.

Darvas may be a swinger - pretty close actually: he was a dancer  - but the main reason why he didn't trade intra-day is that in his days, computers hadn't been invented yet and he didn't have access to live data while dancing for a living on cruise ships. The principles can still be applied to any trending tradable instrument.

Examples:
Paritech's Pulse, the software I'm using for my trading, offers Darvas boxes to be loaded on any chart. As long as there is a trend, Darvas can be applied and traded. It even includes a (shaded) red stop-out zone underneath each box, which suggests the area "a fraction" below the last associated entry level. 
That zone is rather narrow on a Daily chart:




Same stock with 5-minute ticks suggests much wider "fractions":




While I did not trade ASB by Darvas boxes, the above charts support my decision to take bites at $1.85, $1.91, and $1,955 and no need to sell in between.


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## Sebforliberty (24 July 2015)

pixel said:


> "A fraction" is another word for "a small amount" - could be a tick or two. In French you'd say _"un peu"_.
> 
> Darvas may be a swinger - pretty close actually: he was a dancer  - but the main reason why he didn't trade intra-day is that in his days, computers hadn't been invented yet and he didn't have access to live data while dancing for a living on cruise ships. The principles can still be applied to any trending tradable instrument.
> 
> ...




Woua thanks ! Based on your charts, it seems that the stop loss is 1% Under the lower box boundarie.

However in other parts of the book, as a general rule, Darvas talks about putting the entry 0,25% beyong the upper boundarie, and the stop loss 0,25% Under the UPER boundarie (also that's not consistent with some trades that he did and lost about 2 to 4% of the capital...). It's only when a new box if formed that you put the stop Under the new low box boundarie.

That seems problematic to me because the probability to touch a 0,5% stop loss on a volatile stock (remember that Darvas traded only small caps with strong revenue growth and leading in the most dynamic sectors...not the general market or currencies, which move differently) seems close to 100% in my view...so it's too narrow...do you agree ? or maybe the idea is that if a breakout occures the price should shoot up very fast without looking back. 

So if somebody could explain how to manage entry and stop loss Under the Davas strategy that would be very nice


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## peter2 (24 July 2015)

N. Darvas was able to put his stop loss 1/8 or 1/4 point below the top of his box because there wasn't the same amount of trading activity and volatility that we see in the current markets. Proponents of his approach have suggested that the SL be placed below the bottom of the box since that is marked by a low. Others have included an additional 1% or 2% below this. 

If price has traded above the top of the box, then you don't need to wait until price goes all the way to the bottom before you realise the break-out of the top has failed. 

Darvas boxes in a trend make beautiful charts.


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## Sebforliberty (24 July 2015)

peter2 said:


> N. Darvas was able to put his stop loss 1/8 or 1/4 point below the top of his box because there wasn't the same amount of trading activity and volatility that we see in the current markets. Proponents of his approach have suggested that the SL be placed below the bottom of the box since that is marked by a low. Others have included an additional 1% or 2% below this.
> 
> If price has traded above the top of the box, then you don't need to wait until price goes all the way to the bottom before you realise the break-out of the top has failed.
> 
> ...




Thank you very much ! Yes i think you're right. So i will put my entry 0,25% beyond the upper bondarie of the box, but the stop loss 0,25% under the low bondarie of the box. Does it seem correct for you ?

1% or 2% below the upper bondarie could work, but 1 or 2% below the low bondarie is absurd...if you come close from the low bondarie it's already that the stock doesn't behave well....

What about a stop loss at 50% retracement of the box (between the upper and lower bondarie) ?


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