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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » What is this Box Theory? How it's applied in the stock market?

What is this Box Theory? How it's applied in the stock market?

+3
FLOWER2
NZ BOY
Quibit
7 posters

Go down  Message [Page 1 of 1]

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

The Darvas box theory is a momentum strategy for use with a short-term trading style. When I saw short-term, I don't mean day trade, although I suppose that is possible as well. I mean short-term in the sense that one tends to hold the stock for less than a year. However, the exit points are not very well defined by Darvas. His only remark is that he sells when the stock penetrates the box to the downside. Seems clear enough, I guess.

At its core, the Darvas box theory system is ludicrously simple: All one needs to do is read and understand the price action of a stock! Watch for the price of a stock to form a 'box', with a lower bound and an upper bound. When, like a set of pyramids, the boxes pile one on top of another, the opportunity to buy occurs when the stock penetrates the uppermost part of the topmost box.

According to Darvas, the stock could bounce around inside the box as long as it liked; he would not buy it unless it penetrated the uppermost box. In fact, he stated that he would be concerned if the stock did not bounce around. Darvas graphically shows this idea on page 189 of his book. However, Darvas himself claimed never to have charted a single stock. He called himself a mental chartist.

A Darvas box is basically an area of consolidation. For whatever reason, the market has decided the stock should neither advance nor decline appreciably, but rather idle sideways. When I chart, I prefer to use bars rather than lines, for the simple reason that the line chart is not precise enough. In his telegrams, Darvas requested high, low, and close for his stocks, so at a minimum that is what we need as well.

On a bar chart, I tend to think of the (weekly) prices within the box as a set of toothpicks. Each individual toothpick can and should be of various sizes. However, once a box has been identified we can draw two horizontal lines: one for the resistance at the top (located at the upper price for the box) and one for the support at the bottom (located at the lower price for the box).

http://www.boxcharts.com/darvas-box-theory-explained-1.html

NZ BOY

NZ BOY
Moderator
Moderator

Quibit wrote:The Darvas box theory is a momentum strategy for use with a short-term trading style. When I saw short-term, I don't mean day trade, although I suppose that is possible as well. I mean short-term in the sense that one tends to hold the stock for less than a year. However, the exit points are not very well defined by Darvas. His only remark is that he sells when the stock penetrates the box to the downside. Seems clear enough, I guess.

At its core, the Darvas box theory system is ludicrously simple: All one needs to do is read and understand the price action of a stock! Watch for the price of a stock to form a 'box', with a lower bound and an upper bound. When, like a set of pyramids, the boxes pile one on top of another, the opportunity to buy occurs when the stock penetrates the uppermost part of the topmost box.

According to Darvas, the stock could bounce around inside the box as long as it liked; he would not buy it unless it penetrated the uppermost box. In fact, he stated that he would be concerned if the stock did not bounce around. Darvas graphically shows this idea on page 189 of his book. However, Darvas himself claimed never to have charted a single stock. He called himself a mental chartist.

A Darvas box is basically an area of consolidation. For whatever reason, the market has decided the stock should neither advance nor decline appreciably, but rather idle sideways. When I chart, I prefer to use bars rather than lines, for the simple reason that the line chart is not precise enough. In his telegrams, Darvas requested high, low, and close for his stocks, so at a minimum that is what we need as well.

On a bar chart, I tend to think of the (weekly) prices within the box as a set of toothpicks. Each individual toothpick can and should be of various sizes. However, once a box has been identified we can draw two horizontal lines: one for the resistance at the top (located at the upper price for the box) and one for the support at the bottom (located at the lower price for the box).

http://www.boxcharts.com/darvas-box-theory-explained-1.html



gd

FLOWER2

FLOWER2
Manager - Equity Analytics
Manager - Equity Analytics

[quote="Quibit"]
"Watch for the price of a stock to form a 'box', with a lower bound and an upper bound. When, like a set of pyramids, the boxes pile one on top of another, the opportunity to buy occurs when the stock penetrates the uppermost part of the topmost box:"

Hopefully today few stocks about to penetrate uppermost part. Cheers


Sstar

Sstar
Vice President - Equity Analytics
Vice President - Equity Analytics

Thanks Quibit, This helps both Technical and Fundamental Investors.

SHARK aka TAH

SHARK aka TAH
Expert
Expert

Thanks Quibit

NZ BOY

NZ BOY
Moderator
Moderator

this is gd article

stevenapple


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Is there any special software or technical tool to apply the box theory. Or we have to do our own manually analyse using charts in Direct FN etc..

FLOWER2

FLOWER2
Manager - Equity Analytics
Manager - Equity Analytics

stevenapple wrote:Is there any special software or technical tool to apply the box theory. Or we have to do our own manually analyse using charts in Direct FN etc..

According to Darvas, the stock could bounce around inside the box as long as it wanted to be like that. Even though Darvas' method is primarily a technical oriented, He himself says he married a fundamental analysis approach with a technical analysis approach when it came to actually buying the stock. Due to copy right I cannot distribute another link that I found in the web. How about following link?

http://www.safehaven.com/article/11615/applying-nicholas-darvas-box-theory-to-todays-stock-market

Applying Nicholas Darvas' Box Theory to Today's Stock Market

stevenapple


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

FLOWER2 wrote:
stevenapple wrote:Is there any special software or technical tool to apply the box theory. Or we have to do our own manually analyse using charts in Direct FN etc..

According to Darvas, the stock could bounce around inside the box as long as it wanted to be like that. Even though Darvas' method is primarily a technical oriented, He himself says he married a fundamental analysis approach with a technical analysis approach when it came to actually buying the stock. Due to copy right I cannot distribute another link that I found in the web. How about following link?

http://www.safehaven.com/article/11615/applying-nicholas-darvas-box-theory-to-todays-stock-market

Applying Nicholas Darvas' Box Theory to Today's Stock Market


Thanks Flower2

Sstar

Sstar
Vice President - Equity Analytics
Vice President - Equity Analytics

What is this Box Theory? How it's applied in the stock market? 344510

SHARK aka TAH

SHARK aka TAH
Expert
Expert

So this Box theory is a hybrid model Smile

I am learning something new for me.

It looks though for me as a Trading approach based on the Break-Out.

Correct me if I am wrong

Sstar

Sstar
Vice President - Equity Analytics
Vice President - Equity Analytics

What are the latest breakout stocks!

VALUEPICK

VALUEPICK
Expert
Expert

Sstar wrote:What is this Box Theory? How it's applied in the stock market? 344510

I really like this picture. After seeing this I can get some ideas about some stocks. We should look for those types of stocks now. I think Break out stocks can come from plantations, banking and finance and Food and beverage sectors. Good luck

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