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Adamned

Darvas Article revealing the true essence of successful speculation

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I believe the article in time magazine on Nicolas Darvas reveals the essence or key secret to successful trading. I thought we could play a little game since reading this short article could benefit all traders who read it. Please give your opinion as to what you think this key secret is. The point of all of this is that there are several core virtues that pertain to trading that are listed in the article. It would be interesting to see what people on this board think are the most important. Thank you in advance for your contribution to every ones education if you take the time to interact with this thread.

 

the official article can be found at: http://www.time.com/time/magazine/article/0,9171,865930,00.html

 

Here a cut and paste copy:

 

The lights go low at Manhattan's garish Latin Quarter nightclub. Onto the stage glides a slim-hipped, broad-shouldered man in white tie and tails. He grasps his partner, a stunning redhead in black tights, whirls her over his head on one arm, hurls her dramatically in a split-legged fall to the floor. The dance team is Nicholas Darvas and his half-sister, Julia, one of the top acts in the U.S. What the tired businessmen watching the show do not realize is that Hungarian-born Nicholas Darvas, 39, is a better money man than most of them; he is a top stock-market speculator who has parlayed his considerable weekly income ($3,500 currently) into a fortune of more than $2,000,000.

 

Moneyman Darvas' methods would raise the eyebrows of most Wall Streeters. Instead of studying what Wall Street calls the fundamentalsâ€â€price-earning ratios and dividendsâ€â€he judges public enthusiasm, a method that works best in volatile markets. "In my dancing I know how to judge an audience," he says. "It is instinctive. The same way with the stock market. You have to find out what the public wants and go along with it. You can't fight the tape, or the public."

 

Darvas' system is tailored to his job. Since he has to do trading from wherever he is dancing (he recently completed an Asian tour) he ignores tips, financial stories and brokers' letters, has never been in a broker's office. Basically, his approach is that of a chartist: he watches price and volume. But the only charts he keeps are in his head. He studies the weekly stock tables in Barron's, receives a nightly wire from his broker giving the high, low and closing of stocks he is following, as well as the Dow-Jones averages. When a stock makes a good advance on strong volume, he begins watching it, buys when he feels that informed buyers are getting in. For example, when he was playing in Calcutta, he noticed E. L. Bruce moving up in the stock tables. Suddenly, on 35,000 shares it moved from 16 to 50. He bought in at 51, though he knew nothing about the company, and "I didn't care what they made." (They make hardwood flooring.) He sold out at 171 six weeks later.

 

 

Darvas places his buy orders for levels that he considers breakout points on the upside. At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. "I have no ego in the stock market," he says. "If I make a mistake I admit it immediately and get out fast." Darvas thinks his system is the height of conservatism. Says he: "If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn't you call that good odds?" If he has a big profit in a stock, he puts the stop-loss order just below the level at which a sliding stock should meet support. He bought Universal Controls at 18, sold it at 83 on the way down after it had hit 102. "I never bought a stock at the low or sold one at the high in my life," says Darvas. "I am satisfied to be along for most of the ride."

 

Limiting his selections to five or six stocks at a time, Darvas often studies one for weeks or months before buying. He steers away from blue chips, buys only growing companies. "I am only in infant industries where earnings could double or treble," he says. "The biggest factor in stock prices is the lure of future earnings. The dream of the future is what excites people, not the reality."

 

Darvas studied economics at the University of Budapest, fled Hungary for Turkey in World War II (he still holds Turkish citizenship), methodically trained eight hours a day to become a dancer. He came to the U.S. in 1951, got interested in the market in 1952 when a Toronto nightclub owner paid him off in a mining stock that promptly trebled. (He sold it at that point; it later collapsed.) Darvas trained for the market just as methodically as he had studied his dancing, read some 200 books on the market and the great speculators, spent eight hours a day until saturated. Two of the books he rereads almost every week: Humphrey Neill's Tape Reading and Market Tactics and G. M. Loeb's The Battle for Investment Survival. He still spends about two hours a day on his stock tables. Even though he has made a fortune he plans to keep on dancing. Dancing is his business; the stock market is just that second income.

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In my opinion this is the key secret...

 

"Darvas trained for the market just as methodically as he had studied his dancing, read some 200 books on the market and the great speculators, spent eight hours a day until saturated."

 

Dream lofty dreams, and as you dream, so you shall become.

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#1.0 "...At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. "I have no ego in the stock market," he says. "If I make a mistake I admit it immediately and get out fast." "

 

#1.1 "...buys when he feels that informed buyers are getting in"

 

#3 (ditto MrPaul) "trained for the market just as methodically as he had studied his dancing"

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#1.0 "...At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. "I have no ego in the stock market," he says. "If I make a mistake I admit it immediately and get out fast." "

 

#1.1 "...buys when he feels that informed buyers are getting in"

 

#3 (ditto MrPaul) "trained for the market just as methodically as he had studied his dancing"

 

Read the Book on Darvas:

 

Nothing more than a simple breakout trading method utilizing common sense. If the Stock broke out from a long trading Sideways range and established a new trading range ( "Box Theory" ), then He would place a BUY STOP at a key Level of Resistance.

 

If there is no follow through after the breakout he would get out with a very close tight STOP Loss ( since he did NOT have the time to follow the Stock due to his Dancing Profession), he was obviously looking for follow through breakouts with HIGH Volume.That combined with the Small Cap Stock selection of innovative companies, another common sense approach. The " Informed Buyers" timing method he used was nothing more than High Volume confirmation, since his Dancing Tours did not allowed him to talk with any informed Brokers, Analysts or other Investors ( amplified, self serving B.S )

 

 

What is truly amazing is how narrow minded and naive were the Reporters of Time Magazine and the general public that promoted Darvas to look like a Genius ! Truly deceiving and a gross distortion of Journalism and Public Information ! lol

Edited by Ronin

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...since his Dancing Tours did not allowed him to talk with any informed Brokers, Analysts or other Investors

 

 

"Informed" brokers and analysts...now that's funnier than any self serving BS :o

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Best trading advice I ever received, "Buy a rising share, sell a falling share".

Hunting for tops and bottoms is a fool's errand.

 

Darvas confirms this:

"You can't fight the tape, or the public." ...

"I never bought a stock at the low or sold one at the high in my life," says Darvas. "I am satisfied to be along for most of the ride."

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