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Nicolas Darvas Trading System (Part 1)
What is the Darvas System and how has it evolved since being introduced 50 years ago?
Nicolas Darvas, the Father of the Darvas Trading System. The Darvas System is a trend following system created by Nicolas Darvas in the late 1950s.
What is the Darvas System and how has it evolved since being introduced 50 years ago?
Nicolas Darvas, the Father of the Darvas Trading System. The Darvas System is a trend following system created by Nicolas Darvas in the late 1950s.
Today, top traders use it to find the market's fastest-moving growth stocks and ride their trends to profits.
While a Darvas trader will always cut his losses quickly, most winning trades are held for a period of several weeks or months.
While a Darvas trader will always cut his losses quickly, most winning trades are held for a period of several weeks or months.
The goal of Nicolas Darvas system was to invest only in stocks with the potential to double, triple, or quadruple over the next 9 to 15 months. He developed a list of criteria which he found to be most indicative of the potential he was looking for.
Without a doubt, Darvas criteria worked as he turned $30K into more than $2 million in less than two years by applying this strategy.
In his final book published in 1977, You Can Still Make It in the Market, Darvas tried to clarify what his system entailed.
In his final book published in 1977, You Can Still Make It in the Market, Darvas tried to clarify what his system entailed.
The following characteristics are presented in their order of importance according to Darvas:
- Only buy companies “whose growth and earnings prospects look highly promising.”
- “Check the overall market trend to ascertain whether stocks in general are in an uptrend.”
- Only buy companies “whose growth and earnings prospects look highly promising.”
- “Check the overall market trend to ascertain whether stocks in general are in an uptrend.”
- “Check whether the stock belongs to a strong industry group, i.e., a group that is performing well in the market relative to other groups.”
- Consider the stock only “if it is rising in price on high volume.”
- Consider the stock only “if it is rising in price on high volume.”
Then, and only after passing these first 4 requirements, would Darvas evaluate a stock in light of his “Box Theory.”
Nicolas Darvas Trading Strategy (Part 2)
What is a Darvas Box ?
The Darvas Box is a trend following System. Darvas writes that stock price movements are not erratic and random, but rather, “a series of price ranges or boxes.”
What is a Darvas Box ?
The Darvas Box is a trend following System. Darvas writes that stock price movements are not erratic and random, but rather, “a series of price ranges or boxes.”
Notice here that Darvas explains his theory as a series of price ranges OR boxes, thus implying that the Darvas Boxes shouldn't be applied too rigidly.
A lot of work goes into properly defining these Darvas Boxes, but for now, simply understand that... continue
A lot of work goes into properly defining these Darvas Boxes, but for now, simply understand that... continue
Darvas was looking for stocks tht developed recognizable price ranges – areas of support & resistance. And, he wanted to c these price ranges trending higher & higher – in other words, he wanted to c higher highs and higher lows.
That is the Darvas System in its simplest terms.
That is the Darvas System in its simplest terms.
Wall Street likes to call this style “trend trading” because you buy high-growth stocks as they move up in price (trending higher) and only sell them when the stock falls below previous support levels (breaking a trend).
Big institutions – mutual funds, hedge funds, pension funds, trust funds, etc. – have the ability to drive stock prices quickly and as a Darvas System trend trader, you’re basically following the trend created by these institutional moves.
