Darvas Boxes

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longshanks

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Tuesday, November 15, 2005 - 10:55 am:

Darvas Boxes

Whilst in Sydney recently I made it along to an ATAA meeting where Frank Watkins was doing a presentation on Darvas Boxes. Sounded interesting, so here is a developing example. Comments much appreciated...

101

Cheers

longshanks}

ragchewer

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Tuesday, November 15, 2005 - 11:02 am:

longshanks,,
i never seen Darvas theory any chance of you putting it onto the chart please,
regards
Paul

longshanks

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Tuesday, November 15, 2005 - 11:06 am:

1 - New Year High

102

longshanks

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Tuesday, November 15, 2005 - 11:08 am:

2 - High, not exceeded for three days

103

longshanks

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Tuesday, November 15, 2005 - 11:12 am:

3 - Low, not exceeded for three days

104

longshanks

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Tuesday, November 15, 2005 - 11:21 am:

4 - Entry is a breakout above the top of the box

5 - Stop Loss is set at the bottom of the box, with trailing stops being raised with the formation of every new box

Therefore, our risk is limited to the width of the box (plus any allowance for setting stop loss just outside the bottom of the box).

(Message edited by longshanks on November 15, 2005)

longshanks

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Tuesday, November 15, 2005 - 11:26 am:

So that's pretty much it...

Any thoughts/comments as to entry, target price, the optimal box size for risk/reward, setting the stop outside the box, or things such as confirmation signals much appreciated.

Cheers

longshanks

ragchewer

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Tuesday, November 15, 2005 - 11:35 am:

thanks longshanks,,
i expected it to be a square box set from the price height to = time width ,glad you posted.

maybe risk reward can be estimated from the average range of previous box's projected forward to give you a target idea.

and to maybe improve the risk when the breakout occurrs lift the stop to 50% of the box it just left,,,just an idea.

many thanks
Paul

ragchewer

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Tuesday, November 15, 2005 - 11:39 am:

an entry could be either candle stick theory ,,ie a hammer or maybe something easy like Guppy count back line trigger,,which could be modified from a 3day to a 2day,,

or just wait for that box to break out so your not stuck in sideways action,,,

and maybe a close outside the lower part of the box would prevent any bear traps like the spike seen on one of your charts here,

all good thanks again
Paul

stickman

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Tuesday, November 15, 2005 - 02:07 pm:

Hi

Have a try of this freebie ?

cheers

http://www.sethi.org/investments/darvas/index.phtml

Trade to Learn, Not to Earn

longshanks

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Tuesday, November 15, 2005 - 02:27 pm:

The makers of Techni Filter Plus have a very good explanation at http://members.iinet.net.au/~bspark/pub/darvas.pdf. The man behind this software makes regular presentations at the ATAA WA meetings and not only really knows his stuff, but also knows how to present it well.

Cheers

longshanks

bundy

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Tuesday, November 15, 2005 - 03:03 pm:

Yea - he's slick ok.

I went along to one of his presentations a few years ago here in Port Macquarie - he goes on the defensive real quick if you start asking too many questions - lots of rhetoric - not much substance.

If you looked around the room you probably would have seen a predominance of retirees who, if you spoke to them, have absolutely no knowledge of what they are doing - they are simply following a black box system that performs well in a strongly trending market.

Then again, so does a dart board.

Any competent trader can do better with his own system - provided he has the discipline to follow his trading rules - and he will be able to trade a variety of different market conditions - patterns, channels, support/resistance, etc etc etc.

But for some people, it at least provides a set of simple trading rules that they seem to be able to follow and make decent returns in the appropriate market conditions.

---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.

longshanks

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Tuesday, November 15, 2005 - 03:28 pm:

Bundy

Not sure if the 'he' you are Are you referring to is in reference to my 1st or 7th post? Anyway...I'm not getting into personalities here...simply talking trading systems.

"Any competent trader can do better with his own system - provided he has the discipline to follow his trading rules - and he will be able to trade a variety of different market conditions - patterns, channels, support/resistance, etc etc etc."

Well that's assuming his 'own system' makes sense. In developing ones own systems, it can be worthwhile to identify other systems and work out the +'s and -'s of the various system.

Bundy, don't take me the wrong way. I'm simply looking at a trading system - end of story. I'm not concerned with products, people or seminars. Not flaming ya bundy, just letting you know where I stand.

Cheers

ls

combankau

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Tuesday, November 15, 2005 - 12:50 pm:

what about Exit strategics?

bundy

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Tuesday, November 15, 2005 - 04:27 pm:

You asked for comments - I gave you what I considered was a balanced, honestly held view.

If you can't accept people's responses to your queries graciously - don't bother wasting their time in future.

---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.

smallworld

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Tuesday, November 15, 2005 - 06:39 pm:

LS
I've recently completed re-coding a Darvas system and has started trialing it. I made a mistake years ago when I read Darvas from book authors and/or presenters (one by the name of a tropical fish

and took it as the rules for Darvas system. I traded it and also tested it, the result was pretty bad.
This time around, I got the definitions from Nicolas Darvas's book "How I made $2M in the stock market". It took a while to convert them to definitive system requirements. You really need a good baseline, not someones else intrepretions.
I added a few of my own rules, such as position sizing, breakout threshold etc. Then I coded the system. Before I got too excited about its performance. I have to make sure the system that I developed was a straight implementation of the rules, and not unintentional deviations or bugs.
Now I can confidently evaluate the results.
Darvas' system performance is not exceptional, but it has a positive expectancy, and if coupled with a solid position sizing regime, produces solid results and probably better than most of the techniques being discussed. However, I am hopeful that Darvas' rules can be used as a basis to develop some pretty good systems.
Some of rules usually not mentioned are
1. Volume - Darvas used volume pattern to decide if there is an sustained buying interests
2. Yearly high - Darvas refer yearly high to 52 week high between april and march the following year. yearly high should be twice that of yearly low.
3. the 3 day high followed by 3 day low is actually a 5 day pattern.
4. Darvas used a stoploss to exit after a false break.

Below is an implementation of Darvas by my system on FKP.
The boxes are coloured for each day
day 1 is white
day 2 is yellow
day 3 is red/orange
day 4 is green
day 5 is blue
At the end of day 5 the box is formed and breakout from the box is traded.

msparks

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Tuesday, November 15, 2005 - 09:52 pm:

Seems quite logical really.
Buy a new high after a pull back from a previous high in an uptrend.(entry or + %age gain stop or last swing low)

Always easy after to see the facts.
Now where is it going from here ?

The boxes are very clever smallworld, smarter than the average, oops

.Cannot say that i might offend someone, sorry Bear

david_louisson

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Wednesday, November 16, 2005 - 06:07 am:

No offence intended to the prior posters in this thread, or to the users of Darvas boxes, but I agree wholeheartedly with msparks.

Every successful trend-following system somehow seems to incorporate elements of the following method:

1. Setup and stock selection: Buy into a strong trend, immediately it resumes itself following a minor pullback. Maxim: trade with the prevailing trend.

2. Timing of entry: earlier = higher risk of stopout, but greater profit if successful.

3. Distance of stoploss exit: tighter stop = higher number of stopouts, but keeps average loss smaller. Maxim to aim for: cut losses short.

4. Distance of profit exit: looser trailing stop = lower risk of profit being cut earlier in the trend, but gives back more profit when ultimately triggered. Maxim to aim for: let profits run.

5. Position size: the ultimate determinant of bottom line. Priority: manage risk. Apply capital so that risk is approximately equal across each trade undertaken. Keep sizes small enough to avoid emotional involvement.

6. Psychology: trade a pre-defined plan consistently, with patience and discipline. Trade what you see on the chart, not what you think or feel.

There is sufficient randomness in short term movements to make minor variations in execution largely irrelevant, e.g. which indicators are used, variations in timing.

To point #1, I would add the following considerations, to further improve the probabilities:

a) Buy the strongest performing stocks in sectors that are outperforming the market index (use "relative strength comparative" or similar indicator).

b) Trade in the direction of the market index's trend.

c) Buy stocks whose TA exhibits the most distant areas of potential resistance (i.e. best reward to risk ratio, greatest freedom of price movement).

d) Buy stocks that are liquid enough to avoid slippage.

e) If you follow fundamentals, buy stocks exhibiting the best fundamentals.

f) As an alternative (or foil) to #1, also buy stocks breaking out of a sideways pattern (or tightening wedge), with high volume.

g) For short positions, the reverse applies, but in general it's necessary to act more swiftly, because bear movements tend to be sharper.

Bottom line is that if you catch enough trends that move far enough to cover both dealing costs, and also profit consumed by their ultimate reversal, you will finish up ahead. Otherwise not. Simple enough in principle. :-)

David

longshanks

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Wednesday, November 16, 2005 - 09:29 am:

many thanks to all for taking the time to answer my questions.

cheers

ls

(Message edited by longshanks on November 16, 2005)

smallworld

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Thursday, November 17, 2005 - 01:30 am:

thank you mspark. The good things about these boxes are that (1) the rules are definitive, they are a no brainer to follow (2) they are visual and you can see why you're buying into them.
On another note. The book by Darvas is well worth a read, even if you dont want to use his boxes. Its about how he developed his conviction to let his rules trade for him, from his near failure to becoming a successful trader (2M in 18 months).

Socceroo Rules

longshanks

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Thursday, November 17, 2005 - 09:39 am:

hi smallworld

Trying to get a copy of the book at the mo, mainly for the story of what he went through before he found his own style. Interesting to see that every major book store on this side of the coast is out of stock and has the book on order from the US...?

Cheers

ls

(Message edited by longshanks on November 17, 2005)

tryhay

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Thursday, November 17, 2005 - 05:12 pm:

Hi

Interesting discussion on Darvas Boxes - looks like a valid system for those who are into code cutting of application modules.

FWIW an alternative view is presented below:

The weekly view shows the SP hovering around an imperfect upper Trend line, after a complete cross channel journey.

The daily view shows some consolidation near the all time high - some indicators do not look -ve so maybe it is setting up to break out after sideways movement of SP

thesnowman

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Thursday, July 31, 2008 - 03:08 pm:

longshanks wrote on Thursday, November 17, 2005 - 09:39 am:
Trying to get a copy of the book at the mo, mainly for the story of what he went through before he found his own style. Interesting to see that every major book store on this side of the coast is out of stock and has the book on order from the US...?

A copy of How I Made $2,000,000 is available on wikipedia.com in Adobe pdf format