Darvas Box Trading System

Biz Café, 2 Desember 2006

Bahan sebagian disadur dari
TechniFilterPlus www.technifilter.com

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Problems facing the Investor/Trader

• Which stocks to trade?

• When to Buy?
• When to sell?
• How much capital to trade with?
• How much capital to allocate to a trade?
• Confusing information from so called
“experts”, “insiders”, “magazines”,
Newspapers”, “tips” …
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Obstacles a trader must overcome

• No Plan of Action
• Holding on to losers to long
• Selling the winners to quickly
• Misconceptions about so called
“Blue Chips” and long term
investments
• Emotional involvement
• Lack of discipline
• Choosing the right tools
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The legend of Nicolas Darvas
Nicolas Darvas was a
successful dancer who
traded Stocks while touring
the world in the 1950’s
He developed a trading
methodology for buying the
only strongly performing
stocks
He turned $36,000 into
$2,000,000 in under 2 years
with his methodology

… Darvas Boxes
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 1-Dec-06 2-Jan-06 11-May-06 1-Dec-06 2-Jan-06 11-May-06
Stock Close Close % Close % Stock Close Close % Close %
DAVO 520 85 511.76 245 112.24 UNSP 850 445 91.01 1,060 -19.81
SMAR 3,700 970 281.44 2,650 39.62 LSIP 5,450 3,000 81.67 4,300 26.74
BMTR 3,700 1,213 205.15 1,075 244.19 SMGR 32,600 18,000 81.11 29,900 9.03
SULI 2,200 840 161.90 1,000 120.00 BLTA 1,730 980 76.53 2,075 -16.63
CTRA 680 267 154.82 567 19.92 UNTR 6,500 3,700 75.68 5,900 10.17
BNGA 1,050 420 150.00 630 66.67 PTBA 3,225 1,840 75.27 3,900 -17.31
MYOR 1,690 690 144.93 1,140 48.25 BMRI 2,900 1,660 74.70 2,125 36.47
APEX 1,780 740 140.54 1,480 20.27 BBRI 5,350 3,100 72.58 4,400 21.59
PJAA 980 450 117.78 1,288 -23.88 APOL 670 405 65.43 850 -21.18
SIIP 445 205 117.07 245 81.63 TLKM 9,900 6,150 60.98 8,250 20.00
TMPI 215 100 115.00 75 186.67 PGAS 10,850 6,950 56.12 13,450 -19.33
CTRS 930 435 113.79 850 9.41 ASII 15,950 10,300 54.85 11,650 36.91
SMRA 1,160 543 113.68 957 21.19 BBCA 5,400 3,500 54.29 4,500 20.00
ANTM 7,550 3,625 108.28 5,600 34.82 BNII 245 160 53.13 205 19.51
INCO 28,350 13,750 106.18 22,300 27.13 INTP 5,450 3,600 51.39 4,775 14.14
AALI 11,500 5,650 103.54 7,000 64.29 INDF 1,390 940 47.87 1,160 19.83
RMBA 240 120 100.00 155 54.84 COMP-I 1,735 1,182 46.76 1,526 13.70

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 1-Dec-
06 2-Jan-06 11-May-06 1-Dec-06 2-Jan-06 11-May-06
Stock Close Close % Close % Stock Close Close % Close %
COMP-I 1,735 1,182 46.76 1,526 13.70 RALS 850 760 11.84 830 2.41
BBNI 1,970 1,350 45.93 1,350 45.93 SMCB 540 490 10.20 670 -19.40
MDLN 230 160 43.75 290 -20.69 ADHI 770 730 5.48 940 -18.09
JPRS 1,250 880 42.05 840 48.81 BUMI 800 770 3.90 910 -12.09
UNVR 6,050 4,275 41.52 4,700 28.72 ISAT 5,850 5,700 2.63 5,600 4.46
BDMN 6,250 4,450 40.45 5,600 11.61 PLAS 870 850 2.35 890 -2.25
AKRA 2,200 1,650 33.33 1,920 14.58 EPMT 600 590 1.69 820 -26.83
KIJA 125 95 31.58 155 -19.35 IIKP 195 200 -2.50 205 -4.88
CMNP 1,050 800 31.25 860 22.09 INKP 930 960 -3.13 1,100 -15.45
BNLI 870 670 29.85 750 16.00 PNLF 145 150 -3.33 205 -29.27
TSPC 770 600 28.33 730 5.48 GJTL 550 600 -8.33 690 -20.29
PNBN 550 445 23.60 500 10.00 MEDC 3,175 3,550 -10.56 4,825 -34.20
KLBF 1,150 940 22.34 1,470 -21.77 GGRM 10,000 11,250 -11.11 10,900 -8.26
TINS 2,325 1,920 21.09 2,400 -3.13 ELTY 135 155 -12.90 250 -46.00
LPKR 1,040 870 19.54 965 7.77 MPPA 740 950 -22.11 980 -24.49
TBLA 255 220 15.91 295 -13.56 BRPT 440 580 -24.14 540 -18.52
JIHD 620 540 14.81 740 -16.22 ENRG 510 730 -30.14 890 -42.70
BNBR 135 120 12.50 210 -35.71 TKIM 1,840 3,100 -40.65 3,150 -41.59

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Buying High priced yet Cheap
stocks
• He chose stocks that were
performing strongly
• Were in an industry with good
growth potential
• He traded in a strong Bull
market
• All trades were protected with
an initial stop loss
• Thereafter all profits were
protected by trailing stops
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Simple yet Clever Trading method

• Mechanical Trading System New year High

• Trade Stocks trading at their
year high (250 days) Entry point
• A large volume spike in the
last recent history
• Doubled in price in the last
year
• The Entry point is defined in
advance Stop Loss
• The Exit point is defined in
advance
• Always use a Stop Loss

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The Darvas Box - Construction
ENTRY EXAMPLE
1. New Year High (Box) Top
4. Entry Level
Entry Price
$1.00
2. Box High
- Pull back
for 3+ days

Z Initial Risk
6. Initial 0.05c or 5%
3. Box Low
- Low not Risk can be
exceeded assessed
for 3+ days
Exit Price
$0.95

STOP LOSS ORDER

5. Stop Loss level PLACED IN MARKET

Box top and bottom defined well in advance 9

The Darvas Box – In Action

• Stock makes a new

year high and pulls
back for 3 or more
days – Entry point
• Forms a low which is
not exceeded for at
least 3 days – Stop
Loss point

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 Trading the Boxes
BOX 4 EXIT

Entry 2 BOX 3 Raise Trailing Stop 3

Entry 1 Raise Trailing Stop 2

BOX 2
• Buy on Breakouts only
BOX 1
Raise Trailing Stop 1
• Set Initial Stop Loss
• Once a new box is
Initial Stop Loss confirmed raise the
trailing stop.
• Exit the trade when the
trailing stop is hit.
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Stop Losses & Trailing Stops

• The main idea behind the STOP LOSS is to limit

damage to trading capital
• The main idea behind a TRAILING STOP is to
lock in profits as the trade moves in our favour
• In fast moving markets Stop Loss & Trailing
stops can be brought up to just under the Box
Top to reduce loss potential or increase profit
potential

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The Darvas Setup
Summarised
• Once a Box top and bottom are in
place
• A Potential trade can be assessed
• Is the risk acceptable? (Difference
between the Buy and Stop Loss) If
the answer is YES?
• Money Management rules should be
applied
• A “Contingent” Buy order can be
placed well in advance to “catch”
the breakout!

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Points to Note
• Not every stock breaks out of the top of the
box, and keeps on running..
• Some fall back in and then continue up
• Some fall through the bottom the box -
causing an EXIT of the trade (stopped out)
• There are losses
• That is why all trades must be protected by
predefined Stops to limit losses and protect
profits and money management rules must
be used to control risk and maximise profits!

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 Masih menunggu
Pembentukan Box
Baru

Buy 2

Buy 1
New High sejak 14 Januari 04

New High sejak 4 Feb 05 Pilot Buy

Surge Volume

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Darvas Boxes – Bull Market
Strategy Summary
• Most signals will be found in a Bull Market
• Easy used as a Mechanical system
• Positions can be added to
• Logical approach
• Removes emotion from the equation
• Can be used to locate strong performing stocks from
small penny dreadfuls to the hi-cap stocks
• Easy to follow methodology
TIP: Cut losses short and let Profits Run
Use Strict Money Management Rules

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 REKSADANA & IHSG 2006 (Nov)
IHSG% Thomas% S-Istimewa S-Prestasi Fortis Trim Platinum
80%

Superb Trader / Investor

70%

60%

50%

40%

30%
Underperfom

20%

10%

0%
29-Jun-06

29-Oct-06

29-Nov-06
29-Apr-06

29-Jul-06

29-Aug-06
29-Dec-05

28-Feb-06

29-Mar-06
29-Jan-06

29-May-06

29-Sep-06
-10%

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