The Box Theory: Market Tactics

[Soultrader 12]

"This experience did more than anything to convince me that the purely technical approach to the market was sound. It meant that if I studied price action and volume, discarding all other factors, I could get positive results."

 

From How I Made $2,000,000 in the Stock Market

 

What is the box theory?

 

Nicolas Darvas said it best, "I started to realize that stock movements were not completely haphazard. Stocks did not fly like ballons in any direction. As if attracted by a magnet, they had 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."

 

In the modern day trading world we call these "boxes" brackets or support and resistance. Price moves from one zone to another. Once prices break this zone, they will enter a new zone. When these zones pile on top of each other we have an official established trend.

 

This concept is similar to a higher or lower value placement in market profile. As long as there is a continuation of a higher value, a trend is in place.

 

When studying price action alone, this is an important concept to understand. Price action is king. Learn this method and apply it to your trading methodology and you will never become extinct.

 

I have studied the Box Theory to apply it to my trading as well as tape reading. For a new trader, the concept of the simply law of supply and demand is hard to grasp. The market is an auction place. There is price acceptance in a new zone or rejection. Acceptance offers opportunities to fade the lower pivot level. Rejection offers opportunities to play the false breakouts.

 

In tape reading, the box theory can be applied by understanding short term support and resistance points. Just like a stock will use resistance as support once broken, the tape acts in a similar fashion. Understand that the more time price spends at one particular level, the more transfer of hands and a possible reversal. Most traders focus on just price and indicators. Learn to apply time into your trading and this will give you a new perspective.

[carter 10]

Great theory, great book.

 

I wonder if this guys still trades using the box theoy. But I agree the theory can be expanded in so many different ways. Im quite amazed that you decided to apply it to tape reading. Which kind of makes sense.

[john.potter 10]

Any one interested in this just Google "Nicholas Darvas" if you don' t get a bite add "how I made two million dollars" the system no longer works effectively as he was doing it in a full blown bull market.

 

However in every chapter of the book he tells of at least ONE major mistake that he made. Just by reading the ebook and writing them all down and learning them would save most new traders Thousands.

 

Once you find the site all the chapters are listed and you can cut and paste them into MS word or a WP and read it at your leisure or you can read it direct off the site.

 

This and Stan Weinstein's "Secrets for profiting in a bull or bear market "Are probably the two most important books I have read both are free on the Internet.

 

Both are American style books however they are not Nationaly specific and both types of trading work as well on the XAO as they would on the DOW