Part 1 - Darvas Box Breakout Strategy with sample screener (with English Subtitles) - YouTube

Before we get into the details of Darvas  Box theory,

it's important to talk about the inventor of it Nicolas  Darvas

Nicolas Darvas was a professional dancer. He used to travel across countries for dance tours

and at the same time, he used to do part time trading in the stock market.

He came into lime light in 1959 when he made more than a million dollars from the stock market

I think within a span of one and half years

Then he made another million dollars

and later he also shared his strategy with people

that he used to make millions of dollars

He also wrote many books

His one of the most popular books was "How I made $2M in the stock market'"

It is also available on Amazon, you can buy it, if you are into books.

He wrote this book in 1970, a bit old now but the core principles and rules he had created then, are still very effective

In this video, I'll explain you those rules

I have tweaked them a bit to keep them contemporary and relevant as per today's market scenario

So I have tweaked them a bit. We'll understand them in the video

As per Nicolas Darvas, the stock prices generally move in a range most of the times

It doesn't move in just one direction, upwards or downwards

When the stock price remains in a range, it generally goes through a consolidation phase

Once the consolidation phase gets over, all it needs is a trigger to breakout from that range

The trigger could be any news or strong volume build up.

Nicolas Darvas designed the Darvas Box theory around this principle

So the concept is - Stock prices generally move in range to consolidate, which is also known as sideways movement of the price.

Once the consolidation phase of the stock price gets over, followed by any trigger

like any news or big money participation,

price is likely to breakout from that range, based on the overall trend

If the overall trend of the stock price is in uptrend, price is likely to break the upper range

and if the overall trend is negative, it is likely to break the lower range

Nicolas Darvas called it, the upper range and lower range of the price, a box

.... and called it Darvas Box

Upper range of the box is called CEILING of the box

and the lower range is called the FLOOR of the box

Whenever prices breaks out either CEILING or FLOOR of the box

we call it the Darvas Box Breakout

and you may have seen such boxes before but might not have realized that it was a box

but certainly you must have seen price moving sideways or in a range followed by a break out from that range

Before I take you to Trading View and show it in some live charts,

it is important to understand some rules defined by Nicolas Darvas sometime in late 1950s.

We can't just go to charts and start drawing boxes

We must first understand those rules

What were those rules

1st rule was - the price must be in a close range of it's ALL TIME HIGH

Though in his book, he mentioned ALL TIME HIGH,

but I have tweaked it slightly to 52-week high, instead of all time high

What it means is, the price is in strong uptrend

it has just hit an all time high and now the price is consolidating in that range

It is actually slowly forming a box there

To be double sure about the strong uptrend, we can also use 100 and 200 points moving averages

that price must be above 100 or 200 points moving averages

If you are using a daily chart, it would mean the price must be above 100 and 200 DMA

The next rule is - price must be at double of its ALL TIME LOW or 52-week low

What these 3 rules are confirming - they are confirming that the price is definitely in uptrend

Which means - when the price would breakout the Darvas Box, it would break the CEILING of the box, not the FLOOR

You can reverse the trend and theory, if you are into short trading

Since I am not into short trading, I will give examples of only long side

Next rule is - once the CEILING of the box is marked

I mean once the all time high (52-week high) candle is formed, we mark the CEILING

The next at least 3-4 candles should not break the high of the candle that formed the CEILING

otherwise, we would say, the box dint happen

So we should wait for the box to be developed. The next 2-3-4-5 candles must not break the CEILING

That way, the box will slowly take its shape

Then the FLOOR of the box will be marked

after a candle makes a low and the price starts moving upwards

then we will draw the FLOOR of the box

What is the rule of the FLOOR - the very next candle must not break the CEILING

Price must consolidate slowly within the box

some volume build up should happen, before the CEILING is broken

Last and the most important rule is -

When the CEILING is broken, I mean when the price breaks out from the box

it MUST be supported by a Volume breakout too

If the box breakout happens without volume breakout, the breakout may not sustain and could just be a false breakout

Now I will take you to Trading View to show some stocks in which Darvas box was formed or is being formed currently

APCL, yes it formed a Darvas box, I remember. I also posted it on Twitter

See, this is the Darvas Box, formed sometime back

See this, it was a new 52-week high

After the new 52-week high, we drew the Darvas Box CEILING

After that, price slowly formed the FLOOR of the box

and then we could see slowly, some volume build up here

and the price also started moving up, slowly

and then this wide candle also reassured that breakout was now very likely

and then finally the breakout happened

As soon as it broke out, you see how the price moved up

People who might have entered a bit late .... here ... somewhere here after the breakout, now they have taken a position

Now the will be kept in the box for sometime, volume will keep on shrinking

Weak hands will slowly exit from their positions ... and then finally price will break out from the ceiling

That's how it works mostly

I also posted this one on my Twitter account. This is my Twitter account

I think I posted APCL sometime back when it broke out from the box on 23rd May

It went to upto 333 from 270 level, in just 2 weeks, after this breakout

Look at this volume that made breakout very convincing

It went upto this level from this level of 333 when I exited from my position

Now it is forming a fresh Darvas Box. So keep this in your watchlist

Apcotex, wow! Can you see this Darvas Box

Now look at this. First it formed the ceiling

Then it made the floor, which later moved to a lower, formed a new floor

Look at the volume, almost dead

Then the breakout happened here ... and look at this breakout

If you hadn't seen this breakout, you dint see anything

Now you see, there is one historical resistance level from the price is taking support

Yes, it was here too

Right, Galaxy Surfactants. In this stock, Darvas is in progress at the moment

Lets see this

This is the 52 week high, there was no high before

now the price is getting consolidated here

So we will wait for a volume spike and RSI to come above 60

Keep this in your watchlist, its a wonderful company

Hikal, one of my favorite Darvas Box breakouts

It was consolidating for a long time

Longer the consolidation, better the breakout

If you see this, this was 52-week high

Let's check

We have a tool called "Date Range", pick this up

This was a breakout after, actually 2 years, 750 days or 505 trading days breakout

At this place Darvas Box started taking shape

It consolidated for a long time

See, from 30th Sep 2020 to April 2021.... wow!!

This consolidation started from hear

Then one floor formed, another floor and then one more floor

and then slowly the volume started getting built up

See here, the volume was getting built up from here slowly

Now at this stage, you knew that the breakout was about to happen anytime

and you also knew that this breakout was going to be a good one

because this volume breakout was so strong that you couldn't miss it

and after looking at this volume and this price action

if you still missed Hikal's breakout, I think you are wasting your time in stock market

The kind price movement it gave after the breakout

One more thing, how do we determine the target of Darvas Box breakout

We have a tool called "Price Range"

Standard target is "from the floor to the ceiling"

Which is like, close to 62 Rs

Now you move this here on top of the ceiling, at the point of breakout

so this should be your minimum target

See, right after reaching target, it took some resistance here

but after that, it went up and see the kind of movement it gave us

look at this, from Rs 204 to 520

A movement of Rs 316

And the good news is, we can another Darvas Box shaping in

Now look at this volume. Volume contraction is in progress at the moment

Slowly, you will see weak hands will start exiting from their positions

and you will see another volume build up, that is your time

You can also buy after the breakout

Sometimes people go for pullback trade

Generally price comes back to the ceiling of the box again

and if you are able to anticipate that volume build up is taking place while the price is still inside the box

you can take a position even before the box breaks out

Floor of the box can be your stop loss

Next stock is HSIL, I also posted it on Twitter

Look at this, it has just broken the ceiling of the box

now if the high of this candle is broken by the next candle

I think you should take a position

One more stock in which I found a very good trade, that was Salasar

First see if it was a 52-week high.... yes it was. It touched this level again after 2018

After that it entered a consolidation phase

Lets draw a box here .. here is the ceiling, floor and here is the breakout

Now see here, suddenly the volume broke out

and the look at the movement

that's how it works

Now if you are wondering how are you going to find those stocks

which are in the range of 15-20% from 52-week high

or have got doubled from 52-week low

then I am sharing a sample screener that you can easily create in ChartInk

If you dont know what ChartInk is and how you can create a screener in ChartInk

then I have already made a video on it, I will leave the link on i-button

Please watch that video. I have explained basics of how to create a screener

by creating a simple strategy too

This sample screener will help you find the stocks which are in the range of 15% of 52-week high

I have taken 0.85, you can tweak it if you wish

For 52-weeks I have taken 250 days ....the trading days in an year

It also filters on volume. Stocks that have volume higher than the average volume of last 20 days

So what it means is - the stock is in the Darvas Box and there is a volume spike too

which means that it should soon breakout from the ceiling of the box

so you can keep them in your watchlist

That's all for the day. Thank you very much

Please do hit the like button if it was helpful