The Darvas Box Theory is a trading method that is based on stock momentum. The momentum theory basically suggests that stock prices that have previously climbed are more likely to do so again in the future. Stock prices that were falling previously are more likely to fall again in the future.
By drawing boxes around the highs and lows throughout time, the idea provided insight into when to enter and depart certain positions. It encourages practitioners to only take long positions in rising boxes and to set exit points based on the highs of such boxes. As a result, if the price of a stock falls below that exit threshold, the stock should be sold.
> When the price moves between a horizontal support and resistance levels, it forms a rectangle.
> As the price goes up and down between support and resistance, the pattern shows that there is no trend.
> When there is a breakout and the price moves out of the rectangle, the rectangle comes to an end.
> Some traders prefer to trade rectangles by buying around the bottom and selling or shorting towards the top, but others prefer to wait for breakouts.
During rectangles, there are a lot of false breakouts. Some traders prefer to wait for a false breakout before entering a trade in the hope that the range would persist.
Some breakouts result in massive profits when the price explodes out of the rectangle with a large move. Many rectangles will have little price movement towards the end. In certain circumstances, the price moves outside of the range and then returns to it.
By drawing boxes around the highs and lows throughout time, the idea provided insight into when to enter and depart certain positions. It encourages practitioners to only take long positions in rising boxes and to set exit points based on the highs of such boxes. As a result, if the price of a stock falls below that exit threshold, the stock should be sold.
> When the price moves between a horizontal support and resistance levels, it forms a rectangle.
> As the price goes up and down between support and resistance, the pattern shows that there is no trend.
> When there is a breakout and the price moves out of the rectangle, the rectangle comes to an end.
> Some traders prefer to trade rectangles by buying around the bottom and selling or shorting towards the top, but others prefer to wait for breakouts.
During rectangles, there are a lot of false breakouts. Some traders prefer to wait for a false breakout before entering a trade in the hope that the range would persist.
Some breakouts result in massive profits when the price explodes out of the rectangle with a large move. Many rectangles will have little price movement towards the end. In certain circumstances, the price moves outside of the range and then returns to it.