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Replies to #62 on The Darvas Method

DonCarlson

01/10/03 7:43 PM

#63 RE: Vibr8gKiwi #62

Gheeze Vibr8gKiwi, Darvas is indeed opposite of AIM. Take a look at Post #58 and #29, I was responding to MM about the 5% shadow that Darvas extended below the "Box"...In #58 I was illustrating how AIM could be used to estabish the boxes with the 5% shadow AND use Darvas trading strategy, not AIM trading (scale trading). i.e. select a stock and as long as new boxes are being defined upward...let the profits run, when the price breaks below the shadow area, sell.....not Scale Trading, but Darvas Trading.

I had to smile when I read your link on Scale Trading as the World's Worst Trading Strategy and discribes in great detail how bad it can be when a stock is bought at $50 and goes to $1 http://www.investopedia.com/university/fiveminute/fiveminute6.asp

Then the the author starts the very next Chapter out as "The Reverse Scale Strategy" and states in Bold letters "I want to emphasize that perhaps the best strategy of all, for most people, is to simply apply the stock picking criteria in the past chapters, then buy and hold their selected stocks without ever selling them."

Assuming the author had used the same stock picking strategies for Scale Trading and Reverse Scale Trading .... I wonder how he figures he's better off with Buy and Holding as the stock tumbles from $50 to $1?










aptus

01/12/03 10:52 PM

#65 RE: Vibr8gKiwi #62

AIM is a poor trading technique but an excellent long-term investment technique. In most successful trading techniques you buy on strength and sell on weakness.

Investment techniques are the opposite. You buy on weakness and sell on strength (this idea was promoted by no less than Benjamin Graham). Investment techniques also require you study a stock to ensure it has good long-term potential.

Trading techniques don't require good long-term fundamentals because you're in and out in a relatively short time.

In both cases, you should also diversify your holdings to provide better risk protection.

In summary, you can't really compare the Darvas Method (a trading system) with AIM (an investing system). However I don't believe that's what Don was doing. He was simply showing how you could re-interpret an AIM chart to work like the Darvas method.

Regards,
Mark

http://www.automaticinvestor.com