The risk grows as the leverage is higher. If the currency drops below the bottom of the box, not only can he sell, but he can go short.įurther reading: 5 most predictable currency pairsįoreign exchange (Forex) trading carries a high level of risk and may not be suitable for all investors. If a currency climbs above the top of the box, then a trader can go long and follow the trend. This means that the Darvas strategy can work both ways on forex. But that’s not the case with forex because currencies are valued against each other and have an equal chance of going up or down. Stock markets have an upward bias since companies bring in profits and generally trend higher over time. Darvas trades weekly, but it may be possible to trade on shorter time frames too. Once the box is drawn, you simply wait for the currency to break out of the top and go long when it does. If you can draw a comfortable box around a currency then you have a market that will work well with the box system. Trading weekly, the best solution is to look for currencies that are trading in a tight range. When the stock falls back under the bottom of the box he sells the trade.Ĭlearly, the system can just as easily be used on the forex markets. Then, when the stock breaks out the top of the box, Darvas goes long. The lower level thus forms the bottom of the box and the high forms the top. Boxes can be drawn whenever a stock trades with a tight range for a period of time. Whenever a stock makes a 52 week high, Darvas waits for the next move down and draws a box around the two levels. The Darvas technique is based on a simple breakout system which Darvas uses to draw boxes around the market. Since trends are not limited to stock markets alone, the strategy can just as easily be implemented in the forex markets. He then went on to write about his system in the book, ‘How I made $2,000,000 in the Stock Market’.ĭarvas’ strategy is based on a simple trend following strategy and many believe that it still works today. As an international performer, Darvas would travel the world and telegram his stock orders to his broker in the US, relying on just his system and print stock listings which he picked up each week from Barron’s newspaper.
Nicolas Darvas was a circus dancer and stock market trader from the 1950s who achieved legendary status by turning $36,000 into over $2 million over three years.
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