Stocks & Commodities V. 23:6 (16-22): Something Darvas, Something New by Daryl Guppy
Product Description
Stocks & Commodities V. 23:6 (16-22): Something Darvas, Something New by Daryl Guppy
In the May 2005 STOCKS & COMMODITIES, Daryl Guppy discussed classic Darvas-style trading. Here, he modifies the technique to fit modern-day markets, given that markets are more volatile these days than they were in the 1960s.
The increased volatility of modern-day trading has reduced the risk control elements of the Darvas approach, which was originally developed and applied to less volatile markets. The Darvas box and trailing-stop approach is designed to keep you in a long-term steady trend, since the stop-loss level remains unaltered for extended periods in the face of substantial price moves. But in the volatile markets of today, this kind of strategy could expose you to an unexpectedly high level of risk. To bring this classic trading style into modern markets, I made four modifications. Each modification is consistent with the underlying logic of the Darvas method.
MODERN DARVAS RULES
The new rules are shown in bold:
• Trade is initiated by a new high for the rolling 12- or six-month period.
• All entry decisions are based on the high of the price series.
• All exit decisions are based on the close of the series.
• Entry action is triggered by the first trade at the trigger price.
• Exit action is managed on the day after the trigger close.
• Action is triggered by the close.
• Stop-loss calculation uses ghost boxes where necessary to handle modern volatility.
In the May 2005 STOCKS & COMMODITIES, Daryl Guppy discussed classic Darvas-style trading. Here, he modifies the technique to fit modern-day markets, given that markets are more volatile these days than they were in the 1960s.
The increased volatility of modern-day trading has reduced the risk control elements of the Darvas approach, which was originally developed and applied to less volatile markets. The Darvas box and trailing-stop approach is designed to keep you in a long-term steady trend, since the stop-loss level remains unaltered for extended periods in the face of substantial price moves. But in the volatile markets of today, this kind of strategy could expose you to an unexpectedly high level of risk. To bring this classic trading style into modern markets, I made four modifications. Each modification is consistent with the underlying logic of the Darvas method.
MODERN DARVAS RULES
The new rules are shown in bold:
• Trade is initiated by a new high for the rolling 12- or six-month period.
• All entry decisions are based on the high of the price series.
• All exit decisions are based on the close of the series.
• Entry action is triggered by the first trade at the trigger price.
• Exit action is managed on the day after the trigger close.
• Action is triggered by the close.
• Stop-loss calculation uses ghost boxes where necessary to handle modern volatility.
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