The Darvas Box Strategy

Trading is profession that looks simple enough for anyone to jump right in but it actually involves a number of preparations before the real trading action takes place. Foremost is the search and study of the market and the financial option that you are looking to trade in. After you are done with a satisfactory amount homework, the strategy that you employ in your trading journey is equally important.

Trading strategy? Try Darvas Box Strategy

One of the well-known strategies in the field of trading is the Darvas Box Strategy. The Darvas Box Theory was developed by Nicolas Darvas, wherein he targeted the stocks using the the highs and volume of trades as key indicators for entering or exiting a certain market. This strategy involves using the high points of stocks to trade and making a box around the highs and lows of the market to determine the entering ad existing point of a certain market. These boxes can also be used to determine where to put the stop-loss order, which is a way to limit the investors’ loss to a certain point.

Dravas Box Strategy, How Does it Work?

Dravas Box Theory work with the momentum of the market. It’s a strategy which involves using the market momentum to along with the basic technical analysis of the market to determine the indicators which tell when to enter and exit a market. The darvas box suggests to trade only using the rising boxes for trading and the breached high boxes are used to update the position of the stop-loss order.

The strategy is majorly technical one and was designed to help traders in determining which stocks to target in the market. Darvas Box Theory does involve some fundamental technical analysis. Nicolas originally designed this strategy to target the growing industries which excited the investors the most and the industries which showed a great deal of growth over time.

Where to use the Dravas Box Theory?

Darvas Box Strategy is used primarily for the industries where there is a huge growth potential and high interest of investors. The strategy uses the volume of the trading being done in that industry as an indicator for growth and whether it is a good idea to go for the particular market or not. While developing this strategy, Darvas studied the daily prices of certain stocks that he selected. He would make a box around the highs and lows of a market with greater trade volume. When the high breached the ceiling of the box, Nicolas would buy the stock and the ceiling would determine the position of the stop-loss order. The trade would end when the stop-loss was reached.

This strategy is designed to work with industries with high potential for growth and where investors show a great interest. The volume of the trades being made in that industry determine the position of the Dravas Boxes and the highs and lows determine the entry and exit points to provide for a high profit chance and a successful trade.

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