Shapes of Boxes and Darvas

Continuing with my self-study of stock trading, I came across Darvas Box Theory

Lifted from Investopedia

• Darvas' trading technique involves buying into stocks that are trading at new highs 
• The strategy traces its origins to 1956, when Nicolas Darvas turned a $10,000 investment into $2 million over an 18-month period using this theory.  
• type of momentum strategy
• to determine when to enter and exit the market 
• If the price breaks out of the Darvas box, the investor takes this as a sign of a breakout

MoneyGrowers advise to use Dravas Box in  stocks with a.) 52 week high and b.) high volume.
How to plot: 1. highest point, check next forward 3 candles if this point is not superseded; this will be the top border; then 2. mark the lowest point in the next 3 candles.  The ends of the candles measured may be body to body or wick to wick.

Notes:

• Once the price pierces the upper border by 1-2% then it is a buy signal
• Stop loss price is the lower border
• Once the lower border is pierced, the lower border is plotted first before the top border
• After a series of making boxes, you have a price range

ZF wrote

• successful breakouts are usually in a form of solid long green candles with high volume
• break from the border sends the price flying or falling into the border's direction
• if the price touches the border but does not break it, the border is said to be tried and tested

Trading is a Jungle and Trading Setup Up

This must be the third time I will say I got all the more puzzled about stock trading; I was self studying the system of a successful stock trader. Again, the flaw of not having a mentor.

On reading the blog posts, I realized that reading it from the earlier post to the latest is NOT the way to go. One post may have a more detailed explanation later on in another blog post or that there is a difficult concept might be introduced early and the explanation is on a later post. I decided to approach it in another way through labels or tags.

ZF said there are two types of play

• Momentum
• Sell on Target And Trailing Stop
• Bounce
• Sell on Resistance

Technical Analysis versus Fundamental Analysis

Lifted from Investopedia

• technical analysis
• looks at the price movement of a security and uses this data to predict future price movements
• begin their analysis with charts 
• short term approach 

• Fundamental analysis
• instead looks at economic and financial factors that influence a business
• start with a company’s financial statements 
•  long-term approach to investing 

In a Twitter twit, ZF posted the classic trend following starter setup

• 20/50/100 SMA
• MACD
• RSI