3/08/2012

Nicolas Darvas and the stocks that double

The market is having a pullback after a up leg that started in December. During the move around 100 stocks have doubled from their 52 week low. Some of these stocks will setup for further up move during the correction phase.

Nicolas Darvas popularized a very simple trading method in his book " How I made $200000 in stock market" to trade such stocks. Darvas was interested only in stocks that doubled from 52 week low. His logic was they are proven horses. The logic also makes sense based on empirical research . Empirical research shows that stocks with momentum (3 to 1 year out performers) tend to go up in next 3 to 1 year.

Nicolas Darvas would further reduce the universe of stocks that doubled by looking at stocks that have made all time high. That reduces the universe of around 100 stocks that doubled from 52 week low by half to around 30 to 40 stocks.

The next criteria Darvas used to reduce the universe was sector. He was interested in what he called "infant industry". His logic was a stock making all time high in a static or dying industry was not worth his time and effort as it is unlikely to make a big subsequent move. He was interested in a young sector with potential for substantial growth. If you use that criteria on the 30 to 40 stocks you would be left with 10 or so candidates to focus on.

On those 10 stocks Darvas used further criteria to narrow the list. He was interested in only stocks with best earnings growth or stocks with great earnings expectation in future. That would further reduce the universe of stocks that he was interested in to 4 to 6 stocks. On those stocks he would look for capitalization and float and prefer smaller stocks. He would also look for volume during the doubling of price and was interested in stocks that had substantial volume surge during their up move.

Nicolas Darvas was basically playing a probability stacking game. Each of his criteria increased the probability of finding a big mover. Combined all those probabilities and you have a very high probability stock with potential to make big move.

Once he identified a stock like that he would wait for it to form what he called a "Darvas box". Darvas Box was nothing but a sideways consolidation of few days to weeks or months on such stocks. He would buy the stock when it broke out of that consolidation on high volume. He would use a limit buy order to enter above the consolidation. Once in the stocks he put his stops near the box high. His logic was that if the high volume breakout out of the box indicates start of new up leg then the stock should not go back in to box.. If that happened it was a mistake to buy the stock. He was willing to get stopped out several times with small loss.

Once the stock started going up he would put his stop near the new box low and keep raising it as the stock moved from one consolidation area to another. He would also keep pyramiding in to stock along its up move. He aggressively used margin. At some stage the stock would reverse and take out the box low and he would be stopped out of his open position.

Dravas called his method "Darvas Method in Rising Market". He traded it only in bull market. He sat out bear markets. Darvas method is a momentum+fundamental based stock selection method. It is a good method for working people or people who can not watch market in real time.

Darvas method can easily be setup in trading software like Telechart. All that you need to do is setup a scan that looks for stocks that have doubled from 52 week low and that are within 15% of 52 week high. Once you get the list, you can manually eliminate stocks that are not near all time high. After you have the list you can use free sites like MSN money, or Yahoo Finance, or Finviz to research the stock further and create 4 to 5 stocks prospect list.

Nicolas Darvas Criteria List:

  1. Double from 52 week low
  2. All time high
  3. Infant sector
  4. Current earnings growth or expected growth
  5. Low capitalization
  6. High volume surge
  7. Box or range near recent high



Nicolas Darvas summarized his  momentum based approach very nicely :

My only reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth. 





Are you serious about your trading?

If you are serious about your trading and want to build an enduring edge the Stockbee Member site might help you. Members tell me they have tried lot of things before coming to my site and it has offered them the most extensive and detailed methods to swing and position trade.

It is only for those who want to develop their own self sufficient trading method. It is not a stock picking service. It is service for you to build your own scans and trading method to have your own daily pick based on your method.

Be warned it will take you time to learn to trade. Learning to trade is difficult art and unless you are willing to spend months or years to perfect your strategy and also develop your mental edge you are unlikely to succeed in this game. Unless you understand that no site, no service, and no mentoring is going to work.

Why traders come to stockbee?

The member site is one of the most recommended site for learning to trade by other traders and bloggers. You will see no advertising, no hard marketing, no promotions, no free offers, no affiliate marketing, no incentive to other bloggers to promote the site, no constant twits self promoting the site, no free trial  and no tall claims of making you instantly wealthy, and yet the site attracts new  members everyday. Members come from all walks of life and all kinds of trading size and trading styles.

You will see that many trading bloggers have been using my market timing methods, scans , stock ranking lists and chart templates. They have developed their own methods based on my methods. Many paid newsletter site recommend my site to their subscriber for learning about trading and market.

Over the years thousands of traders have been members and those who benefited from the learning talk about the site to others or talk about the methods used and that is how new members learn about the site.





What will I learn in the members site?

The members site will give you in depth understanding to develop your own trading method. The emphasis is on making you self sufficient and confident of your own trading method and style.

As a member you will learn the basics of swing trading, momentum investing, growth investing and risk management.

You will learn about Stockbee Trend Intensity Breakouts method that uses momentum based swing trading to find 3 to 5 day swing trades for 8 to 40% profit.

You will learn about Stockbee Episodic Pivots Breakout method which uses Post Earnings Announcement Drift (PEAD) to find stocks that had a game changing earnings and that are likely to rally for 3 months to 12 months.

You will learn about  Stockbee Dollar Breakout method that uses momentum, range expansion and swing trading approach to find 5 to 40 dollar moves in high priced stocks.

You will learn about  Stockbee Lemonade Strategy for 401k which uses market timing and momentum to invest in 401k. You will get weekly update on how I am using the strategy on our 401k to do allocation decision.

You will learn about Stockbee Market Monitor method for market timing using breadth. It allows you to avoid risky periods in market and allows you to identify market turns. It is used for 401k allocation decisions.

You will learn about Stockbee Double Trouble method to find stock with confirmed upside momentum using anchored momentum and that are likely to continue their up move.

You will learn about Stockbee Night Time is Right Time method to find news catalyst based trade ideas for short term day trade and swing trade.

You will learn about Investor's Business Daily’s IBD 200 list and how it can be used to find swing trading candidates for explosive moves.

You will learn about Telechart 2000 and how to use it effectively to scan for swing and position trade ideas and to set up your 401k strategy.

You will learn about Jesse Livermore Range Breakout, Darvas Box setup, and many other member shared methods.

You will learn how to set up your own scans, select right kind of stocks, how to set up stops, when to enter , when to exit, how much to risk, how to track your trades and all other details about trading. You will learn about developing your own methods and not relying on others for trade ideas.

The site has hundreds of videos and trading methods and variation of methods. Members help each other in developing the methods and share actively their research and finding. A collaborative spirit allows you to get input from others on your trading ideas or problems.

The site gives you opportunity to interact with some of the most successful traders and learn from them about their trading methods. It is a vibrant community with members from different background and experience willing to help each other. The emphasis is on continuous learning and up gradation of market knowledge and setup knowledge. The members range from hedge fund employees, financial advisers, active swing traders, investors and new traders.

If you are looking to develop your own trading strategy the membership site might be for you. You have to be willing to put in the effort to build your own method. There are no silver bullets offered on members site. Every method, every scan, every nuance is detailed and all possible help is offered to design your own method.

Do you have a trial?

If you are just looking for trial you are better off trying thousands of other trading sites that offer free trial or one month trial and offer you promise of riches.

It is for those who are ready beyond the trial phase and ready to put serious months or years  of efforts to learn to trade on their own. It is for those who want to learn to find their own fish.

The free blog has all the details about the methods I trade and if you go through the posts highlighted in the sidebar you will learn about them.



How can I become a member?

To sign up go to www.stockbee.biz and follow the sign up process. The site uses Paypal for payment processing.

2 comments:

MRSTOCK said...

And it should now be quite easy with all the computer power and analysis software around, to do some analysis on whether this system actually works ! Does it? My gut feeling is no.

AbsoluteSpeculation said...

MrStock, you don't have much knowledge of trading theory and the way that the market is structured if you believe that it doesn't work. This style of speculation has always existed in markets and it will always work, as long as humans participate.

It's okay to be skeptical, but once you do your own due diligence, you too will discover that most successful speculators in markets use similar concepts.