Stocks & Commodities V. 23:5 (36-42): Darvas-Style Trading by Daryl Guppy
The markets have changed since the 1960s, with the weekly trading volumes of those days often exceeded by a single day of trading now. With that in mind, can classic techniques such as Darvas-style trading still work?
Nicholas Darvas was a Hungarian-born dancer who successfully traded the market in the early 1960s. His book, How I Made Two Million Dollars In The Stock Market, is a classic. It describes a unique approach to understanding the nature of trend behavior. The Darvas trading style uses trend analysis based entirely on dynamic support and resistance concepts. It is a complete and standalone trading approach. It is not combined with straight-edge trendlines, or with moving averages, or with the Guppy multiple moving average, or any other indicator.
Darvas trading defines an uptrend by constructing a series of imaginary boxes based on a price chart. Each box contains a set of price moves. Each new box sits on top of the previous box like a set of rising stairs. When price moves above the upper edge of the box, it means the continuation of a trend is confirmed. The trend ends when prices close below the bottom of the current box. These upper and lower limits create a Darvas box and define the acceptable bullish and
bearish range of prices.
For several years, this approach was tested in current
markets with real trades and modifications consistent with the logic of the Darvas method, but taking into account changes in volatility that characterize modern markets. These included applications to breakout trading using a different set of initiating triggers while applying the basic method.