How Box Trading works

WHAT IS DARVAS BOX TRADING?

Darvas Box Trading is a share trading technique that uses historical data on the daily movement of stocks traded, to identify potentially profitable stocks and the optimum time to buy and sell each one.

HOW DOES THE DARVAS BOX TRADING WORK?

A Darvas Box represents a graphical trading plan for a quality stock, which is trading in an upward trend, at a significant enough volume to cause a spike.

A share that fits this profile will be flagged by the Darvas Box Trading Scanner as a potential trade, inviting the trader to start monitoring it more closely.

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MAXIMISING PROFITS

A unique feature of Darvas’s philosophy is the pyramiding of profitable positions by buying additional parcels of stock to concentrate financial resources into rising stocks.

The philosophy was to only accept minimal losses. So when he had a winning trade, he would focus his financial resources, not diversify them in order to maximise profits.

With the risk management provided by the trailing stop, poor performance is not accepted as those trades will be “stopped out”.

MANAGING GAINS

A key aspect of Darvas’ trades was the use of trailing stop-loss orders to manage trading risk.

Darvas used extremely tight stops which resulted in:

  • Minimizing capital losses
  • “Stopping out” of more trades

By doing this, he increased his stop-loss level until it passed the breakeven point and the position moved into a no-lose trade.