How The Darvas Box Can Lead To Financial Freedom




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The Darvas Box Stock Market Success Story (part 22)

I found that a stock sometimes stayed for weeks in one darvas box. I did not care how long it stayed in its darvas box as long as it did - and did not fall below the lower frame figure.

I observed, for instance, that when a stock was in the 45/50 darvas box it might read like this:

45. 47 - 49. 50 - 45 - 47

This meant that, after reaching a high at 50, it could react to a low at 45 then close every day at 46 or 47 and I was quite happy. It was still within its darvas box. But, of course, the movement I was constantly watching for was an upward thrust toward the next darvas box. If this occurred I bought the stock.

I did not find any fixed rule as to how this takes place. It just has to be observed and instantly acted upon. Some volatile, eager stocks moved into another darvas box within hours. Others took days. If the stock acted right, it started to push from its 45/50 darvas box into another, upper box. Then its movement began to read something like this:

48 - 52 - 50 - 55 - 51 - 50 - 53 - 52

It was now quite clearly establishing itself in its next darvas box - the 50/55 box.

Do not misunderstand me on this. These are only examples. What I had to decide was the range of the darvas box. This, of course,

varied with different stocks. For instance, some stocks moved in a very small frame, perhaps not more than 10% each way. Other wide-swinging stocks moved in a frame between 15% and 20%. The task was to define the frame exactly and be sure the stock did not move decisively below the lower edge of the darvas box. If it did, I sold it at once, because it was not acting right.

While it stayed within its darvas box, I considered a reaction from 55 to 50 as quite normal. It did not mean to me that the stock was going to fall back. Just the contrary.

Before a dancer leaps into the air he goes into a crouch to set himself for the spring. I found it was the same with stocks. They usually did not suddenly shoot up from 50 to 70. In other words, I considered that a stock in upward trend that reacted to 45 after reaching 50 was like a dancer crouching, ready for the spring-up.

Later when I had more experience I also learned that this 45 position in a stock after a 50 high point has another important benefit. It shakes out the weak and frightened stockholders who mistake this reaction for a drop, and enables the stock to advance more rapidly.  

 

This article is actually only a small snippet of Nicolas Darvas' work...

"Discover The Original Method Of Nicolas Darvas... The Young Dancer Turned Investor Who, Within 18 Months, Turned $25,000 Into $2,000,000"

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