Nicolas Darvas was a circus dancer and stock market trader from the 1950s who achieved legendary status by turning $36,000 into over $2 million over three years. As an international performer, Darvas would travel the world and telegram his stock orders to his broker in the US, relying on just his system and print stock listings which he picked up each week from Barron’s newspaper. He then went on to write about his system in the book, ‘How I made $2,000,000 in the Stock Market’.
Darvas’ strategy is based on a simple trend following strategy and many believe that it still works today. Since trends are not limited to stock markets alone, the strategy can just as easily be implemented in the forex markets.
Darvas Box System
The Darvas technique is based on a simple breakout system which Darvas uses to draw boxes around the market.
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Whenever a stock makes a 52 week high, Darvas waits for the next move down and draws a box around the two levels. Boxes can be drawn whenever a stock trades with a tight range for a period of time. The lower level thus forms the bottom of the box and the high forms the top.
Then, when the stock breaks out the top of the box, Darvas goes long. When the stock falls back under the bottom of the box he sells the trade.
In forex
Clearly, the system can just as easily be used on the forex markets. Trading weekly, the best solution is to look for currencies that are trading in a tight range. If you can draw a comfortable box around a currency then you have a market that will work well with the box system.
Once the box is drawn, you simply wait for the currency to break out of the top and go long when it does. Darvas trades weekly, but it may be possible to trade on shorter time frames too.
Going the other way
Stock markets have an upward bias since companies bring in profits and generally trend higher over time. But that’s not the case with forex because currencies are valued against each other and have an equal chance of going up or down.
This means that the Darvas strategy can work both ways on forex.
If a currency climbs above the top of the box, then a trader can go long and follow the trend. If the currency drops below the bottom of the box, not only can he sell, but he can go short.
Further reading: 5 most predictable currency pairs
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