Darvas Box Theory — Tracking Uptrends
The Darvas box theory is based on the work of Nicolas Darvas, author of the book "How I Made $2 Million in the Stock Market". This indicator uses his box theory to help visualize upward trends and find potential opportunities to buy or add to a position.
Darvas was a growth stock trader. After extensive study of historical stock movements, Darvas noted stocks "have a defined upward or downward trend which, once established, tended to continue. Within this trend stocks moved in a series of frames, or what I began to call boxes."
Darvas Box Theory
■ A box defines a high and low range that contains a stock's movement over a period of time.
■ Darvas preferred "lively" stocks that moved up and down within a box. In his research, Darvas noted stocks with these characteristics often had significant moves up.
■ Boxes stacked one after another often indicate a strong upward trend.
■ A potential buy signal is a stock moving past the high of the topmost box with a significant increase in volume.
■ Within the range of a box, Darvas considered movement to the bottom of the range a healthy sign. These moves down shakeout weak holders who sell thinking the downward trend may continue.
Defining a Box:
■ After price makes a new high, there must be three consecutive bars that don't exceed the high.
■ Once the top of the box is set, the same process is used, in reverse, to determine the bottom.
■ Once the high and low are established, a box is drawn over the range of bars.
■ With this indicator, there are two options to determine when a box is complete, that is, when a box is fully enclosed and a new box can be started. The default is when there is a close above or below the high or low of the box. Using the close may provide a better perspective of the overall trend by limiting noise of price movements within a bar. The second option to complete a box is when a bar's high or low goes above or below the boundaries of the box. The preferred option is configurable within the indicator Settings.
Lookback Range
■ The lookback range is used to determine if the current bar has reached a new high, which could indicate the start of a new box.
■ The value specified for the lookback determines how many bars back to compare against the current bar high.
■ You can set the lookback value for intraday, daily and weekly charts.
■ It's recommended to experiment with lookback values across various timeframes to find settings that fit with your trading style.
Suggestions from Darvas:
■ The box theory works best during a strong uptrend, where boxes stack one after another.
■ When breaking through the top of the box, ideally there will be a significant increase in volume. This may be an opportunity to buy or add to a position.
■ Try and hold stocks that are consistently moving up by raising a stop-loss along with the rise.
■ Take losses quickly.
Indicator Features:
■ Box completion can be based on a close above/below the box boundaries or a move above/below the box boundaries.
■ Configure the lookback range for intraday, daily and weekly charts.
■ Configure box borders and background colors.
■ When the last bar is within a box, show an optional breakout price indicating a move above the top of box.
Darvas was a growth stock trader. After extensive study of historical stock movements, Darvas noted stocks "have a defined upward or downward trend which, once established, tended to continue. Within this trend stocks moved in a series of frames, or what I began to call boxes."
Darvas Box Theory
■ A box defines a high and low range that contains a stock's movement over a period of time.
■ Darvas preferred "lively" stocks that moved up and down within a box. In his research, Darvas noted stocks with these characteristics often had significant moves up.
■ Boxes stacked one after another often indicate a strong upward trend.
■ A potential buy signal is a stock moving past the high of the topmost box with a significant increase in volume.
■ Within the range of a box, Darvas considered movement to the bottom of the range a healthy sign. These moves down shakeout weak holders who sell thinking the downward trend may continue.
Defining a Box:
■ After price makes a new high, there must be three consecutive bars that don't exceed the high.
■ Once the top of the box is set, the same process is used, in reverse, to determine the bottom.
■ Once the high and low are established, a box is drawn over the range of bars.
■ With this indicator, there are two options to determine when a box is complete, that is, when a box is fully enclosed and a new box can be started. The default is when there is a close above or below the high or low of the box. Using the close may provide a better perspective of the overall trend by limiting noise of price movements within a bar. The second option to complete a box is when a bar's high or low goes above or below the boundaries of the box. The preferred option is configurable within the indicator Settings.
Lookback Range
■ The lookback range is used to determine if the current bar has reached a new high, which could indicate the start of a new box.
■ The value specified for the lookback determines how many bars back to compare against the current bar high.
■ You can set the lookback value for intraday, daily and weekly charts.
■ It's recommended to experiment with lookback values across various timeframes to find settings that fit with your trading style.
Suggestions from Darvas:
■ The box theory works best during a strong uptrend, where boxes stack one after another.
■ When breaking through the top of the box, ideally there will be a significant increase in volume. This may be an opportunity to buy or add to a position.
■ Try and hold stocks that are consistently moving up by raising a stop-loss along with the rise.
■ Take losses quickly.
Indicator Features:
■ Box completion can be based on a close above/below the box boundaries or a move above/below the box boundaries.
■ Configure the lookback range for intraday, daily and weekly charts.
■ Configure box borders and background colors.
■ When the last bar is within a box, show an optional breakout price indicating a move above the top of box.
Release Notes:
Version 2.0
What's New:
■ Option to show distance to breakout price (box highest high) as a percentage.
What's New:
■ Option to show distance to breakout price (box highest high) as a percentage.
Release Notes:
Version 3.0
What's New:
■ Custom alerts on break above box high or below box low.
■ Option to show distance in price and percentage to box high and/or low.
What's New:
■ Custom alerts on break above box high or below box low.
■ Option to show distance in price and percentage to box high and/or low.
Release Notes:
Version 4.0
What's New:
■ Allow price/percentage labels to be adjusted left/right in relation to the last bar.
What's New:
■ Allow price/percentage labels to be adjusted left/right in relation to the last bar.
Release Notes:
Version 5.0
■ Option to show the rightmost vertical bar, one bar to right to candle wicks are not obscured.
■ Borders can be turned off/on.
■ Option to show the rightmost vertical bar, one bar to right to candle wicks are not obscured.
■ Borders can be turned off/on.
Release Notes:
Version 6.0
■ Minor updates to visual layout of boxes.
■ Minor updates to visual layout of boxes.
Release Notes:
Version 7.0
■ Added two options for determining box highs and lows.
■ Box border styles are now configurable.
■ Choose timeframes (intraday, daily, etc) to display boxes.
■ Added two options for determining box highs and lows.
■ Box border styles are now configurable.
■ Choose timeframes (intraday, daily, etc) to display boxes.
Release Notes:
Version 8.0
■ Updates to Settings and managing border colors and transparency.
■ Updates to Settings and managing border colors and transparency.
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Paypal Donation: is.gd/PayPal_Donation (thank you!)