Basically, a trend trader will like to know the market direction and also signals to buy (or sell) whenever he (she) wishes to take action. Unlike intraday trading, trend trading is easier as it is not necessary to check price movements in the day when market is open. Trend trading rely on end-of-day price results.
Disclaimer: This is for education only and not a proposal to buy or sell shares.
The Darvas Box trading strategy
This is a set of simple methods that a beginner to stock trading can use easily. This is the Darvas Box. We draw a box from the last pivot high to the last pivot low (see blue box in chart). The box indicates to us the last highest resistance and the last lowest support respectively. Any price bar that violates the top is a signal to buy. Of course it must first qualify the trend indicator as uptrending.
- Indicator to check bullish or bearish move – Momentum (10)
- Buy/sell signal – Darvas Box
In the example, SBUX the stock has been in a volatile period between June 2011 to Sept. 2011
(note: click on the chart for larger view)
BUY
The first sign of buying opportunity was on June 21, 2011. In the first box, we joined the last resistance high with the last support low. Upon breakout above the box on June 21 was the buy signal.
GMMA indicator showing red lines converged and pointing up.
(note: click on the chart for larger view)
The first sign of buying opportunity was on June 21, 2011. In the first box, we joined the last resistance high with the last support low. Upon breakout above the box on June 21 was the buy signal.
GMMA indicator showing red lines converged and pointing up.
Momentum indicator green line crossed above blue and pointed up. Signs of trending up.
SELL
The next point would be the sell signal on August 8 when it broke below the box.
(note: click on the chart for larger view)
Another breakout occurred again on Dec 20, 2011. This time, the box formed a nice low support at $40.65 with both GMMA red and green lines expanding like blooming flowers.
In the example above, we have a few basic criteria:-
Is the trend up or down? – We use Momentum and GMMA as indicators to show us the direction.
What is the price-volume action? – We need to confirm break higher of prices must be on higher volumes. Volume indicates the interest of other traders to join in or stay out.
What is the signal to buy? – We use Darvas Box. Breakout is a sign of breaking resistance.
How do we protect our trade? – We use low of the box as a guide to stop loss.
Happy trading!
cardinal rule 4: trade with protection - protect capital and protect profit by setting trailing stops
cardinal rule 4: trade with protection - protect capital and protect profit by setting trailing stops
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