Trading Indicator – Darvas Box
The original Analysis Toolbox articles discussed the various market cycles including trends and continuations. This part of the The Trader’s Indicator Series focuses on the Tradng Indicator Toolbox, as we will discuss various indicators that are found on most trading platforms. We will discuss the trading indicator in the context of the chosen market, and if it resonates with you, please continue to do your own analysis with it. Trading successfully is all about feeling comfortable with a methodology and using that system repeatedly even when boredom sets in. I will be discussing indicators in alphabetical order that can be found on the MotiveWave platform. (for a free 2-week trial CLICK HERE)
Darvas Box Trading Indicator
Like other trading strategies, the Darvas Box is a break out momentum strategy. Developed in 1956 by ballroom dancer Nicolas Darvas, this strategy enabled him to turn a $10,000 investment into $2,000,000 over 18 months. Naysayers attributed his success to the bull market that existed at the time, and were quick to say that similar results couldn’t have been achieved in a bear market. It is also said that Darvas achieved peace of mind from following his strategy, and was less hyped about the money that he made.
The Darvas Box uses fundamental analysis to determine which stocks to buy or sell, and technical analysis to determine when to trigger the trade and when to exit the market. Darvas’ fundamental philosophy was to invest in growth stocks. He looked at an increase in volume for confirmation in industries that he expected to grow. Then, he used the Darvas Box method for his entry and exit strategy.
Even though Darvas used this method for his stock portfolio, this indicator can be used on any trending market. In the S&P Daily Chart below, the Darvas Box is automatically drawn with bullish price action.
USING THE TOOL
The first step is to look for signs that a market is trending or about to trend. This can be done by looking at the fundamentals and focusing on the stocks or markets that are starting to move. Create a watch list. After deciding that a stock sector, currency grouping or commodity is about to trend, then use the Darvas Box for entry and exit signals. Just as with all indicators, the Darvas Box gives false signals too. Traders need to take that into account.
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