Darvas Box Theory

AAA

DEFINITION of 'Darvas Box Theory'

A trading strategy that was developed in 1956 by former ballroom dancer Nicolas Darvas. Darvas' trading technique involved buying into stocks that were trading at new 52-week highs with correspondingly high volumes.

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 not far from that high. If the price falls too much, it can be a signal of a false breakout, otherwise the lower price is used as the bottom of the box and the high as the top.

INVESTOPEDIA EXPLAINS 'Darvas Box Theory'

In 1956, Darvas was able to turn an investment of $10,000 into $2 million over an 18-month period. While traveling for his dancing, Darvas would obtain copies of The Wall Street Journal and Barron's, but he would only look at the stock prices to make his decisions. It has been said that Darvas was less happy about the profits that he made than he was about the ease and peace of mind that he got from implementing his system.

Skeptics of Darvas' technique attribute his success to the fact that he was trading in a very bullish market. They also say that returns comparable to the ones he saw can't be attained if this technique is used in a bear market.

RELATED TERMS
  1. Game Theory

    A model of optimality taking into consideration not only benefits ...
  2. Investment Strategy

    An investor's plan of attack to guide their investment decisions ...
  3. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  4. Fundamental Analysis

    A method of evaluating a security that entails attempting to ...
  5. Chaos Theory

    A mathematical concept that explains that it is possible to get ...
  6. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Trading Systems & Software

    Darvas Box Traps Elusive Returns

    Follow a modern trade to see how this old strategy still captures profits today.
  2. Fundamental Analysis

    The Basics Of Game Theory

    Break down and examine the potential consequences of economic/financial scenarios.
  3. Active Trading

    The Darvas Box: A Timeless Classic

    This method helped its inventor turn $26,000 into $2 million. Many argue it still works.
  4. Trading Strategies

    Basics Of Technical Analysis

    Learn how chartists analyze the price movements of the market. We'll introduce you to the most important concepts in this approach.
  5. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  6. Fundamental Analysis

    Is Apple's Stock Over Valued Or Undervalued?

    Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ...
  7. Trading Strategies

    Trading On The Psychology Of Round Numbers

    Price action around big round numbers, like 10, 100 and 12000 set up special trading opportunities that take advantage of shifting crowd psychology.
  8. Investing

    What Is The Real Picture Of Linn Energy?

    Numbers don't always tell the full story. Take, for example, the long-term chart for LINN Energy which was expected to be down more than 40%.
  9. Chart Advisor

    Commodity Traders Are Using Momentum To Profit From These Stocks

    Active traders are drawn to momentum strategies. These momentum winners of 2015 are worth a trader's second look.
  10. Trading Strategies

    How To Make The Most of Fibonacci Grids

    Build your Fibonacci skills by finding the longest price swing on your chart of interest and placing a grid over the trend. Repeat at shorter intervals.

You May Also Like

Hot Definitions
  1. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  2. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  3. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  5. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
  6. Irrevocable Trust

    A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets ...
Trading Center