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How The Darvas Box theory help?

Darvas box Investing

Author: AshisB   |   Latest post: Sat, 13 Feb 2021, 1:25 PM

Darvas box theory is a trading strategy developed by Nicolas Darvas that targets stocks using highs and volume as key indicators.

The Darvas box theory is a type of momentum strategy. It uses market momentum theory along with technical analysis to determine when to enter and exit the market.

Darvas boxes are a fairly simple indicator created by drawing a line along lows and highs. As you update the highs and lows over time, you will see rising boxes or falling boxes.

Author:   |    Publish date: Sat, 13 Feb 2021, 1:25 PM

The principle of the Darvas Box is essentially a pattern that follows the method. But unlike most other techniques, the Darvas Box Hypothesis does not anticipate or predict a price shift. In the opposite, it responds only to industry patterns.

There is a major contrast between the two methods. If you're using a trading method that anticipates a price shift, odds are you may be incorrect or correct. Yet you can't be accurate all the way. The markets, as you know, are irrational. So there are moments when you're right about capital, but there are times when markets show you're wrong.

Using a reactive trading approach ensures that you, as an investor, respond to the market action. You basically allow price to do whatever it wants and then based on what price does, you trade accordingly.

The way the Darvas Box Theory functions is to begin by looking at stocks that have a large trade volume. Darvas then evaluated these stocks and then purchased the stocks as they grew to 52 weeks in height.

The box that was drawn by Darvas was a box. The upper end of the box was the ceiling, which was 52 weeks high. As stocks struggled to crack the 52-week peak after three trading sessions, it became the top of the box.

When the price fell from the 52-week peak, the subsequent lows were the floor of the box. The Darvas box is drawn, then. Following this (meaning that after the Darvas box was plotted), Nicolas Darvas bought back the 52-week high price and then split over it.

Alternatively, it will shorten as the stock fell from the lower end of the box, since it suggests that the market struggled to smash the 52-week peak and only fell through the floor. Stocks, after approaching 52-week tops, frequently come under strong volume and momentum. As a result, Darvas was able to take advantage of the traction and managed to transform his $3000 into millions.


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