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Saturday, 15 September 2007 |
The Inventor
Once upon a time there was a ballroom dancer named Nicolas Darvas. In 1956 he created a trading technique now known as Darvas Box.
The Technique
His technique is a very simple one: draw upper and lower limits to track the trend and entry and exit points. To pick a security that this works with, Nicolas Darvas chose securities that were making 52 week highs, and either had a bullish or bearish trend set up.
A Darvas box is created when the price of a stock rises above the previous 52-week high, but then falls back to a price below that high. The lower price is used as the bottom of the box and the high as the top of the box. Beware: If the price falls too much, it can be a signal of a false breakout. This system is best known to be accurate in a bullish market.
An interesting system indeed. Darvas noted that a breakout must be accompanied with sufficient volume
Darvas used a stop loss at the previous boxes low. This protects any profits made, if any.
* All images are from www.mrswing.com
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