BROWSE

Darvas Box Theory

What is 'Darvas Box Theory'

Darvas box theory is a trading strategy that was developed in 1956 by former ballroom dancer Nicolas Darvas. Darvas' trading technique involves buying into stocks that are trading at new highs. A Darvas box is created when the price of a stock rises above the previous high but falls back to a price not far from that high.

Explaining 'Darvas Box Theory'

The Darvas box theory is essentially a momentum strategy. It uses market momentum theory and technical analysis to determine when to enter and exit the market, and it uses fundamental analysis to determine what to buy or sell. If the price breaks out of the box, it is a sign of a breakout. In this way, the Darvas box helps traders determine what price to enter and exit the market.

The Philosophy: What to Buy

The main idea behind Darvas' trading philosophy is to focus on growth industries. These are industries that are expected to outperform the market. Darvas selected a few stocks from these industries and monitored their prices every day. He looked for signs that the stock was ready to make a strong move. The main indicator he used to look for these signs was volume. A significant increase in volume increased the likelihood of a big move. Darvas looked for unusual volume on a handful of companies in industries he expected to grow.

The Trading Strategy: When to Enter and Exit

Once Darvas noticed unusual volume, he created a Darvas box with a narrow price range. The stock's low for the time period presents the floor of the box. The stock's high for the time period represents the ceiling of the box. When the stock breaks through the ceiling of the box, the trader is supposed to buy the stock. Likewise, when the stock goes below the floor of the Darvas box, it is time to sell.


Further Reading


A proposal to revive the European Fiscal Framework
www.econstor.eu [PDF]
[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives-public debt sustainability and fiscal stabilisation. In theory …

The case for reforming euro area entry criteriaThe case for reforming euro area entry criteria
akjournals.com [PDF]
[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives-public debt sustainability and fiscal stabilisation. In theory …

How to improve European Union cohesion policy for the next decadeHow to improve European Union cohesion policy for the next decade
www.econstor.eu [PDF]
[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives-public debt sustainability and fiscal stabilisation. In theory …

Fiscal federalism in crisis: lessons for Europe from the USFiscal federalism in crisis: lessons for Europe from the US
www.econstor.eu [PDF]
[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives-public debt sustainability and fiscal stabilisation. In theory …

12. Facts and lessons from euro area divergences for enlargement112. Facts and lessons from euro area divergences for enlargement1
books.google.com [PDF]
[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives-public debt sustainability and fiscal stabilisation. In theory …

Justice in finance: the normative case for an international financial transaction taxJustice in finance: the normative case for an international financial transaction tax
onlinelibrary.wiley.com [PDF]
[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives-public debt sustainability and fiscal stabilisation. In theory …

European fiscal rules require a major overhaul. Bruegel Policy Contribution Issue n˚ 18| October 2018European fiscal rules require a major overhaul. Bruegel Policy Contribution Issue n˚ 18| October 2018
aei.pitt.edu [PDF]
[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives-public debt sustainability and fiscal stabilisation. In theory …

Beyond the crisis: prospects for emerging EuropeBeyond the crisis: prospects for emerging Europe
link.springer.com [PDF]
[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives-public debt sustainability and fiscal stabilisation. In theory …



Q&A About Darvas Box Theory


What is Darvas Box Theory?

Darvas Box Theory is a theory developed by Nicolas Darvas while traveling the world as a professional ballroom dancer.

How did the theory develop?

The theory was developed in the 1950s while traveling the world as a professional ballroom dancer.

How many stocks did Darvas use for his trading technique?

He used only three stocks.

What is Darvas box theory?

Darvas box theory is a trading strategy that was developed in 1956 by former ballroom dancer Nicolas Darvas.

Once he noticed unusual volume, what did he do next?

He created a narrow range between the low and high prices during that time period as his "box".

What does this article discuss about Darvas Box Theory?

This article discusses how to use Darvas box theory to make money on Wall Street.

When would you buy into this stock once it broke through its ceiling or sell when it went below its floor ?

You would buy when it broke through its ceiling and sell when it went below its floor .

What was one indicator that he used to determine if the stock was ready for movement?

One indicator he used was volume.

Why did he choose these particular stocks?

He chose these particular stocks because they were expected to outperform the market.

What are some of the key points discussed in this article?

Some of the key points discussed include using stop loss orders, and making sure that you have enough capital available for your investment strategy.

What does the price of a stock have to do with the creation of a Darvas box?

The price of a stock has to fall back to a price not far from its previous high.

Where did he look for this unusual volume?

He looked at it on a handful of companies in industries expected to grow.