Technical Indicators,  Weekly Lessons

Darvas Box

February 16, 2019

Yung gumawa nito  was Nicholas Darvas, who was a dancer. I won’t get in sa kanya kasi you can search it sa internet naman. Darvas box ay box or boxes kung saan nagt-trade or nag range yung price ng stock. For example for few days or weeks umaakyat sa 1 peso at bumababa lang sa 0.95.

Ganyan galaw nya paulit ulit so it forms a box. 1 peso being the upper line ng box at 0.95 naman yung lower line. I won’t go into specifics ng Darvas. Dahil marami newbies dito I will simplify it. Let us say sa isang period ng time or sa isang buwan ngtetrade si smph between 37.4 down to 34.5. Yang ang range nya. Di sya bumababa lower sa 34.5 di rin tumataas higher sa 37.4. So dahil di sya tumataas higher sa 37.4 yung 37.4 na yun is yung resistance nya at dahil di sya bumababa lower sa sa 34.5 yun yung support nya. Pag ginuhitan mo ng linya yung support at ganun din yung resistance. Lagyan mo lang ng guhit then sa dalawang sides at may box ka na.

So Darvas Box is actually just support and resistance. Up an down lang sya jan sa loob ng isang buwan. Minsan 35 minsan 36 basta in between lang sya ng 37.4 at 34.5.

Ok. So basically what smph is telling us is yung 34.5 na price cheap na kaya marami nagbibilihan kaya di bumababa doon at ang 37.4 na price eh sobrang mahal kaya kokonti bumibili doon at mas marami sellers. So in order na mabreak yung 37.4 na price meaning it would take more than normal buyers. At kapag yung 37.4 (resistance) eh nabreak or nabasag yung tawag doon breakout. So sa darvas box doon ang bilihan. Buy kapag lumabas (ngbreakout ) sya sa box. Between 1-2% above the resistance yun if you want to be specific pero simplehan lang natin.

Kahit anung timeframe gamitin mo. day, 15 min, 5 minutes…kahit an0 yung principle is the same.

Hanap ka ng support (price na di na naglolower pa doon) at resistance (price na di na naghigher pa doon) at mgdraw ka ng box. Kapag nabreak yung itaas ng box (resistance) bumili ka. Ganun lang ka simple yun.

Ayon kay darvas kapag nagbreakout at bumalik ulit sa box ay e benta mo na. Pwede ka gumawa panibagong box after ng breakout kasi diba general rule kapag breakout yung dating resistance nagiging support at maghahanap ulit new resistance or new highs.

So yun. Ganun lang. Significant ang break ng darvas kasi it usually means na malakas ang buyers kasi di naman mbbreak yung resistance na yun kung walang grabe na volume lalo na kapag matagal na naglaro yung price sa loob ng box.

 

DARVAS RULES/CONDITIONS

Darvas established some rules, not just for his strategy, but for himself. After going though his initial learning period of subscribing to a whole bunch of “advisory services,” he found that none of them worked, and they often contradicted each other. Therefore, he proposed seven basic rules to impose on himself.

The following are summarized from his book.

I shall not follow advisory services.
I shall be cautious of broker advice.
I shall ignore Wall Street sayings or truisms, no matter how ancient or revered.
I shall only trade stocks on major exchanges with adequate volume.
I shall not listen to (or trade off of) rumors or tips, no matter how well researched they may sound.
I will use a sound strategy instead of gamble…I must study this strategy (originally this approach was fundamental analysis, which didn’t work for him, so he developed his Darvas Box trading method).
I will hold one position for longer, as opposed to juggling a bunch of positions for a short period of time.
These rules helped Nicholas Darvas develop his strategy, and have the discipline to stick to it. The basic Darvas Box strategy rules are as follows:

-Darvas looked for increasing volume when selecting stocks to trade; this alerted him to stocks that were being accumulated and were likely to see strong trends.
-Darvas believed in buying stocks that presented an upper box limit breakout, but also had an upward Earnings trend. This was especially the case when the major indexes had experienced a decline.
-When an upper box limit is broken, buy. From his book, the entry price was usually about 1 to 2% above the upper box limit.
-If you enter a trade and the price proceeds to drop out of the new box, and back into the old box, exit the trade.
-Entry and stop loss orders should be set in advance, so trades aren’t missed and risk is controlled.
-Place, and trail the stop loss order to below the low of the most recent box. This initial stop loss was pretty tight, because Darvas assumed when a price broke out of an old box, it was entering a new box. ---Therefore, the stop was placed just below the high of old box which was just broken (low of new box).
-Record trades, including reasons why you entered and exited.
-General conditions of the market must favor buying. Don’t buy stocks when the major indexes are in a bear market, or when volume is flat or declining.
-If you are stopped out, but the price moves back into the higher box again providing another buy signal, buy again, using the same stop loss location.
-Since the stop is being trailed up, more funds can be added on each consecutive breakout.

 I don’t really use them. I just make a box out of support at resistance. Kapag nabreak ang resistance at strong ang volume I just buy. Then plot ako alma for exit. I hope medyo gets nyo na ang Darvas. I explained it na simple para magets ninyo at magamit. It sounds complicated lang kasi may mga strict rule yung ibang trader sa highs at lows or sa wick at sa candle pero wala naman yun.

Maraming modified darvas box depende sa nasanayan ng user. Box na nga lang tawag ng iba kasi ibang set ng rules finafollow nila at di na yung original ni Darvas.

Simple trading method lang sya which is effective naman as long as yung breakout eh supported ng big or strong volume.

Read it. Practice it. Learn from it.

3 Comments

  • Arvin

    Kahit si Darvas na matagal na panahon na nagtrade ay ayaw din sa reco. ehemmmm TRC!

    I read the book How I made 2M in the stock market which is about Darvas, good read po sya. Kung gusto nyo mas in-depth tungkol sa blog neto ni GandaKoh, basahin nyo din.

    Thanks po dito GK! more power TL fam!

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