Trend follower Guru: Nicolas Darvas

We know plenty of trend followers - in my humble opinion they are the only long term winners of the market. Like Richard Dennis, Paul Tudor Jones, Richard Donchian, George Soros, Jesse Livermore… but there is one remarkable self-taught guy, Nicolas Darvas. He invented the very useful andvery simple trend following technical system, the Darvas Box Theory.

He graduated as an economist in Hungary, but later became a famous dancer around the world at the time of Second World War. He travelled and danced around through the planet and became a famous and successful show dancer. Once in Canada after his show the club owner didn't have enough cash and as a compensation, Darvas received 3000 pieces of Brilund stocks, a Canadian mine company's paper. He didn’t check the price of the stock for two month, but after when he realized that tripled its worth he decided to start investing into stock business.

All of us had already this experiment. At the first trade we made nice profit and we started to believe we are the best traders on the world. He did as well. He started to subscribe to broker’s letters, he read all books about the markets. But you know what happened? He lost everything.

After two years of losing he decided to choose his own way and he invented the Darvas Box Theory. He considered the stocks are moving in waves in bull markets. After huge rallies the stocks are consolidating for a while and break out only, if the sentiment is still strong bullish enough. When the stock was in a box, he was flat and waited for proper time. He bought when the price broke out of the box. He was a perfect trendfollower, didn't want to create the trend only wanted to follow it. He simultaneously set a stop-loss order just under opening price. All in all he traded only the breakouts, and used daily chart timeframe. Here is below a chart template for his box theory.

With his new approach – the box system, he came up and made 2,45 million dollar fortune – now it is worth more than 20 million dollar– within 18  month in 1957-58. Basically Darvas never sold short, but realized that his system might be easily be adapted to short markets too.

If you want to read more about Darvas Box Theory you have to check his book, How I Made 2,000,000 in the Stock Market. Published in 1960.

I found a link where you can see how many books refer to his trading system:

• How I Made Money Using the Nicolas Darvas System, by Steve Burns (August 17, 2010)
• Lessons from the Greatest Stock Traders of All Time, by John Boik (May 21, 2004)
• How Legendary Traders Made Millions, by John Boik (March 23, 2006)
• Mastering the Trade by John F. Carter (Dec 7, 2005)
• New York City Vaudeville (NY) (Images of America), by Anthony Slide (Jul 26, 2006)
• How to Make the Stock Market Make Money for You, by Ted Warren (Dec 1994)
• The Best: TradingMarkets.com Conversations With Top Traders, by Kevin N Marder (Sep 15, 2000)
• The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance, by Joel Seligman (Jun 26, 2003)
• Protecting Your Wealth in Good Times and Bad, by Richard A. Ferri (April 18, 2003)
• Sixties Going on Seventies (Perspectives on the Sixties), by Nora Sayre (May 1996)
• Trend Trading: A Seven-step Approach to Success (Guppy Trading), by Daryl Guppy (May 28, 2004)
• The Astute Investor (Second Edition), by Eric L. Prentis (Mar 27, 2006)
• The Perfect Speculator, by Brad Koteshwar (Jun 30, 2005)
• Swing Trading for Dummies, by Omar Bassal (2008)