The Darvas Method

[bbgold]

I guess that no one follows this board
The ingenuity behind the Darvas method is that you do not try to Guess the top or the bottom of a stocks price movement. If you are in an Uptrend, with the previous resistance becoming support once broken, you are not stopped out of a trade with your trailing stop until the stop loss order is triggered, and you are adding shares at every breakout. If you are buying at the breakouts and only triggering a stop if the new support level is broken you can take full advantage of an uptrend. From the posts I have read the uptrend that Darvas was involved in was indeed a Bullish market and his theory kept him only in the stocks that were Uptrending in that market. I am not sure if we will ever see another 18 month uptrend but his theory can also be used in a downtrend. If the previous support level is broken and becomes resistance then you can use a breakout above the previous resistance as your stop loss limit for a Short. If the stock is to continue downtrending then the previous support, once broken, should become resistance and you would continue to move your stop loss order down as the support levels continue to fail. If the stock eventually decides to reverse then whatever previous resistance level was at the top of the box will be broken and your stop loss order will be triggered. The only thing that you need to decide on is the timeframe. The iBox talks about the method being used in daytrading and indeed that is the theory behind most bar chart reversal patterns. If the previous resistance is broken and the price finds higher support then you have a Buy signal until that support is broken. If looking Short and the previous support is broken and the price sets a lower low then you have a Sell signal until the previous resistance is broken. The method can be applied to either Intraday, Daily, Weekly or Monthly charts. As long as you understand the theory behind support and resistance, when support is broken it will become resistance in a downtrend and when resistance is broken it will become support in an uptrend, you can use the Darvas method to keep you in a trade until the Trend is broken. I am sure that you have heard traders talk about a stock being a Buy if it moves above a certain level or a Sell if it moves below a certain level. They are watching to see if the Resistance or Support will be broken to trigger a trade. In Darvas theory that would be when the stock moved above or below the Box set by the previous support and resistance levels. You will often hear it as a Breakout or Breakdown of a stocks price. The SMAs can also be used for this purpose. Look at either an uptrend or a downtrend on Any stock or index and you can see where the Breakout or Breakdown of an SMA will be in line with the Breakout or Breakdown of the last Box in that timeframe. The only thing that you need to decide is which timeframe to look at. Are you going to trade Intraday, Daily, Weekly or Monthly charts and the Boxes that are formed by the support and resistance levels? Good Luck Satorino! :^)