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Daryl Guppy is founder and Director of Guppytraders.com. He is a full-time active private position trader, trading equities and associated derivatives markets. He is an appointed foundation member of the Australian Government Shareholders and Investors Advisory Council.
He is also the author of several best-selling books including Trend Trading, SnapShot Trading, Trading Tactics, Bear Trading, Chart Trading, Trading Asian Shares and Market Trading Tactics.

He is the developer of the Guppy Multiple Moving Average Indicator included in EzyChart. He delivers accredited courses for the Singapore Stock Exchange. He also runs public trading workshops, and equity and futures brokerage sponsored seminars, throughout Australia and Asia.

DARVAS TRADING

     

Classic Darvas is a trend following method based on defining the volatility range of prices over a selected period. The trend is defined by using a series of volatility boxes.

Application
The classic application uses the intraday price as the trigger point for a stop loss exit. This is a stand alone trend trading technique. It is best applied to stocks that are making new 12 month highs. The Darvas box defines the stop loss conditions and the trend continuation conditions. The classic application closes the box where there is an intraday move above or below the box parameters. Darvas boxes can also be applied to any established trend, even though new annual highs have not been created. Stocks should be checked for previous compatibility with this method. It cannot be applied to short side trading.

The user selects the high to be used as the potential starting point for the Darvas box. The EzyChart and GTE Charting Darvas tool will automatically plot lower and upper box lines. When a breakout from the box occurs, the box will be automatically closed.

The user can also apply a ghost box to monitor the development of trends when no formal new Darvas box is created. This is used as a method of managing volatility and lifting the stop loss point. This is a stand alone indicator that is not combined with any other methods.

 (!)  EzyChart 6

EzyChart Version 6 includes Classic and Modern Darvas Boxes. You simply click a button to apply these to your entire chart.

Darvas Trading - Exit signals

    Tactics
  • Breakout's above the Darvas box confirm trend continuation. Traders can buy breakout's.
  • Aggressive traders buy while prices are within the confines of the box in anticipation of a breakout.
  • Breakout's below the box suggest trend collapse. This is a stop loss signal, and an exit is taken.
  • Ghost boxes are used to manage stop loss points while the trend continues without meeting the conditions necessary for a new Darvas box.

    Darvas Trading - Ghost Boxes

    Rules
  • Sell when price drops below the bottom of the Darvas box
  • Sell when price drops below the bottom of the ghost box
  • Breaks above the upper edge of the box signal trend continuation
  • Buy bullish breakout's to new highs
  • Construction rules are automatically applied by the GTE Darvas tool

    Darvas Trading - Commonwealth Bank

    Advantages
  • Exact stop loss points
  • Defines acceptable volatility effectively
  • Excellent trend trading tool
  • Easy to manage using automatic stop loss and buy orders
  • Suitable for investment style trading

    Disadvantages
  • The stop loss is based on the bottom of the most recent Darvas box. In some trends, this can remain unaltered for many days as the new trend continues. This puts profits at risk.
  • Does not suit all trend or all stocks.
  • The GTE Darvas tool will recognise all price bar combinations that meet the Darvas conditions. The user must ensure that the Darvas box is validly based on the most recent highest high and ignore any 'inner' boxes.

First Published: 3 June 2013 - Copyright © Daryl Guppy

DISCLAIMER AND COPYRIGHT
Guppytraders.com (ACN 089 941 560) Pty Ltd is not a licensed investment advisor. This publication, which is generally available to the public, falls under the ASIC Media Advice provisions. The information provided is for educational purposes only and does not constitute financial product advice. These analysis notes are based on our experience of applying technical analysis to the market and are designed to be used as a tutorial showing how technical analysis can be applied to a chart example based on recent trading data. This newsletter is a tool to assist you in your personal judgment. It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs because readers come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature only so you should seek independent advice from your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to decide. The author and publisher expressly disclaim all and any liability to any person, whether the purchase of this publication or not, in respect of anything and of the consequences of any thing done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this publication. Neither Guppytraders.com Pty Limited nor its officers, employees and agents, will be liable for any loss or damage incurred by any person directly or indirectly as a result of reliance on the information contained in this publication.