Who was Nicolas Darvas ? Nicolas Darvas was a dancer cum investor who amazed the Wall Street by building a multi-million dollar fortune with very small capital. During his time off from dancing, he read many books on investing and spent multiple hours analyzing stock market trends. Later he discovered a technique called box theory which made him this fortune.
Below is the Java Applet/plotter which plots Darvas boxes, Moving averages and Fibonacci lines/retracements.
If you do not see Applet below, Click Here! for HTML version . or Download android application!
RESEARCH STOCKS This tool now available on android!
Please wait for a minute after you press above button..
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HOW TO USE THIS TOOL
TERMINOLOGY
- Green boxes indicate that the stock went up the Darvas box.
- Red boxes indicate that the stock went down the Darvas box.
- Blue boxes(or Darvas boxes) indicate that top and bottom are established but so far no breakout i.e. stock is between trading range. This implies you can have a buy order like Darvas used. e.g. buy if > top of blue box.
- Let us say you have your favourite stock which follows basic darvas criteria like (year over year earnings increase, stock is near 52 week high, There's lot of recent interest in this stock i.e. high volume )
- Now put this stock symbol in above tool.
- Wait till you see a blue box or darvas box at the end. (This could be multiple days)
- Take your mouse pointer inside this darvas box to see it's top and bottom.
- Put your stop buy order like top + 0.25 and stop sell order like top - 0.25.
- If stock price goes higher, this blue box will turn green. (You have this stock in your portfolio).
- If stock price goes less than bottom of this box then this blue box will turn red. (You won't have this stock in your portfolio).
Latest analysis of the stock at the bottom of the chart
e.g. Finding Top or bottom or breakout. (e.g. DBox@end::Finding Btm, tp high=126.15 on Feb21, Gd sl=0.35 from Dvs Top, Init$100,Dv$106.94vs$49.62 s1). Top is established here, it's trying to find the bottom. Good sl(Stop loss) is 0.35 i.e. 126.15 - 0.35 based on the history of this stock, If initial investment is $100, then it would have become $106.94 after the end of this period if you followed this method vs $49.62 if you just bought at the begining and haven't sold it yet, s1 and s2 are the two strategies which the tool checks. s1: Here down breakout is not considered at all. i.e. we never sell even if down breakout happens. s2: Here down breakout is considered . i.e. we sell if down breakout happens. We have seen that s1 is better most of the time. Even Darvas seems to use s1 most of the time as he was putting his stop loss along with the buy order with very little margin.
TOP OF THE CHART
- DI: which means Darvas box info and
- SI: which means stock info based on your mouse pointer on the chart.
- MA is moving average e.g. put 30 and press submit
- "Find Good Darvas stocks near breakout" : It goes over the database of stocks and returns stocks which have blue box at the end. Stocks are sorted from high to low return.
- "Find good darvas stocks overall" : It goes over all the stocks in database doesn't matter if they have blue boxes at the end or not.
- "Recompute all" : Sorted list is cached. If you click this then this sorted list is recomputed.
If stock market is not US then use appropriate suffix. Example, for INDIAN stock market: Bombay stock exchange use .bo suffix like infosys.bo and for Nifty .ns suffix like bhel.ns
To plot Fibonacci lines, click left mouse button and then drag the mouse to a desirable point.
You should see five Fibonacci lines at 0%, 38.2%, 50%, 61.8% and 100%. You may read more about Fibonacci lines at www.swing-trade-stocks.com website
How did Nicolas Darvas form this technique? Nicolas Darvas saw that stocks dance all the time. Average people don't jump around dancing on tables in a restaurant. But if a person suddenly starts jumping then there must be something unusual with that guy. Same is true for stocks. If a stock is silent for days or weeks and suddenly starts to jump around then we should be curious to know what's going on. Thus Darvas started to track high volume stocks. Also he was after the stocks which were around their 52 week highs. There is some class/value in that stock which is keeping it higher. Once he figured out some of the leaders having high volume, good earnings and near 52 week highs; he started tracking them. To track these he invented this box theory. With this box theory he was able to see when there is a sudden change in people's perception about a stock. He used automatic trades to not miss the opportunity to buy stocks at the best times. But past is gone and future is unknown. Darvas knew that he may be wrong half the time. So his biggest friend was stop loss. It's like a insurance. Even if you make 30% on one stock and -8% on other, you will end up making good money. You may read more about him and his theory in his book :
How I Made $2,000,000 in the Stock Market
You may also read about Nicolas Darvas on his wiki page Nicolas Darvas .
IBD's William O'Neil took great interest in works of Nicolas Darvas. You can check wiki page of William Neil at William O'Neil
How are the Nicolas Darvas boxes formed in this tool? This tool looks first for the top, if top is not penetrated for 3 days including that day then it tries to find the bottom. It does the same for bottom, i.e. if bottom is not penetrated for 3 days then bottom is established. Low of the days between top and top+3 is ignored as this is the time when top is getting established. After top and bottom are established it tries to find the breakout. If there is no breakout yet then the color of the box is blue. If breakout is to the up side then color of the box is green, else it is red. You can change 3 to any value by choosing duration.
What is blue box ? Blue box means top and bottom of the Darvas box is established but breakout is not known. This means you may put a conditional buy order like buy if greater than a fraction above the Darvas box's top high.
What's the intuition behind Nicolas Darvas box theory ? It seems Darvas box is formed when stock is trading between top and bottom i.e. it is in a trading range. i.e. it is either at a resistance or support point. If a stock goes up this level then it means something changed in people's minds about this stock that they are now thinking that this stock is worth more. We should buy at the beginning of this point not at the very end when stock might come down.
What must you get from all this? Discipline discipline discipline. Investing is no black magic. It's like any other business. Do you have a plan?? Darvas or Fibonacci or any other indicator you use. Just be rational, don't make impulsive decisions. Don't have emotional attachment to stocks. Darvas used to make his trades when the stock market was closed.
Good articles
-- Rules Warren Buffett lives by
-- High volume matters
-- downloading stock data from yahoo
-- 7 breaking out stocks
This site in the NEWS
-- Nicolas Darvas and Other Famous Traders
NOTE:Somebody has rightly said past performance is no indicator of future success. Stock market future is unpredictable, you need to make your own buy/sell decisions based on the risk you can take. I hope this site is helpful to the investors, but it takes no responsibility of the outcomes of investors' decisions.