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. Fintech

    Fintech is a portmanteau of financial technology that describes ...
RELATED FAQS
  1. What are the advantages and disadvantages of using systematic sampling?

    As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >>
  2. How effective is creating trade entries after spotting a Tri-Star pattern?

    The tri-star patterns, both bullish and bearish, are about as rare as they are unreliable. Comprised of three consecutive ... Read Full Answer >>
  3. What happens to the shares of a company that has been the object of a hostile takeover?

    The shares of a company that is the object of a hostile takeover rise. When a group of investors believe management is not ... Read Full Answer >>
  4. How important are descending tops for a trading strategy?

    The descending tops pattern is one of the most commonly occurring chart formations in technical analysis. In trading terminology, ... Read Full Answer >>
  5. What are the most popular forms of technical analysis?

    The most popular forms of technical analysis are simple moving averages, support and resistance, trend lines and momentum-based ... Read Full Answer >>
  6. What is the difference between technical analysis and fundamental analysis?

    Fundamental analysis and technical analysis are distinct methods used to research and evaluate securities. Fundamental analysis ... Read Full Answer >>
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

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  7. Chart Advisor

    Invest in Japan with this ETF

    The Japanese stock market has been front and center in the minds of many international traders over the past few weeks — and for good reason.
  8. Charts & Patterns

    How to Analyze Pharma Stock Fundamentals

    What you need to know about analyzing the fundamentals of pharma stocks.
  9. Chart Advisor

    Bullish Traders Are Turning To Rare Earth Metals

    Companies that explore and or process rare metals are of specific interest to traders because of strong moves in a couple of the sector’s key players.
  10. Chart Advisor

    Long and Short Trades to Consider This Week

    Here are short and long trades to consider, so you have choices no matter which way the market goes.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center