Copyright 2006 http://darvas-investing.chambers-media.com
Hi - let me introduce myself. My name is Alex Chambers. I'm a UK medical doctor who has an interest in the stock market. I use a system first invented by a dancer called Nicolas Darvas in the 1950's. He made $2,000,000 working part-time - whilst travelling round the world on a dancing tour.
Why am I telling you this? Because his methods still work today. And they are deceptively simple to use. I used them to snag a lovely 120% gain on TZOO (NASDAQ) in 6 weeks in 2004 - using weekly data only and working my day job.
Nicolas Darvas was one half of a dancing team in the 1950s called Julia and Darvas. Dancing was his day (or night) job. His dance team was one of the highest paid dancing acts in the world and Nicolas Darvas was successful in almost everything he did - this includes playing championship table tennis and creating crossword puzzles.
However, the stock market was his true love and it is this that really fascinates me about the guy. He was self-taught in the market but managed against all odds to accumulate a fortune, working part-time, of just over $2,000,000 in 18 months. Nicolas Darvas started from a stake of about $25,000 and made his fortune whilst travelling round the world on various dancing commitments.
Darvas detailed his exploits and how he created his system in his classic 1963 text, "How I Made $2,000,000 in the Stock Market". Its a great read and I highly recommended it. Many investors regard the text as a classic. In it he provides an honest and open look at his experience from his naive start to his eventual success. He lays out, in great detail, exactly what he did and how foolish some of his actions were. Then he explains how he came to find success by focusing on the price and volume action of stocks.
A key message of his strategy is as quoted as follows:
"...My only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering..."
Sounds simple eh? The only other investor I know of before Darvas who used such a strategy was the legendary Jesse Livermore.
Also, remember that there was no internet in the 1950s and Darvas had to rely on outdated information in the form of a newspaper and daily telegrams on selected stocks to acquire information for his trading system. His broker mailed a copy of Barrons newspaper each week which contained weekly prices of stocks together with volumes for the week.
Darvas used a top down approach to investing - he only watched stocks from futuristic industries. In the 50's these were credit card industries and the jet age. Darvas realised that the expectation of earnings was one of the greatest lures to raise stock prices higher, and together with the futuristic industry screen, these were the only fundamental factors used in his Darvas Trading System. Today all you have to do is log onto Yahoo.com, go to Finance, and all this information is free.
Once he had satisfied his requirements for fundamentals, he tracked technical data in the stock. He liked stocks that were:
1) At or near their all-time high
2) Bouncing up and down in their "Darvas Boxes" (trading ranges - see below)
3) Had "Boxes" stacked on-top of each other like a pyramid
4) Showing an increase in volume with advancing prices
5) Priced greater than $10
He used "Darvas Boxes" as a way of entering and exiting stock positions. These are in essence a definition of a high and low trading range. A buy signal was created if the price just pushed through the top of a Darvas Box and the price reached a new all-time high. He used stop losses at the low of the trading ranges to protect the downside, and raised the stop loss as new higher boxes were formed. I believe Darvas was the first to use stop loss orders in such a way, and many financial institutions today still use Darvas Boxes as trading ranges, albeit on a smaller time scale.
That's essentially it. The story is utterly remarkable and has placed Darvas in the legends of investing history. If you're interested in more details and about how I use his system, please check out my website. All information is free.
To your stock market success also, Alex Chambers |
