Nicolas Darvas Trading Strategies – How I Made $2,000,000 In The Stock Market

How I made $2,000,000 In The Stock Market by Nicolas Darvas was one of the first trading books I ever bought back in April 1999. It’s a classic, especially the Box Thory, and it’s about Darvas’ trading and investing back in the 1950s and 60s. What is Nicolas Darvas Box Theory?

But don’t let the age of the book scare you away. It has a few invaluable trading lessons. You will not learn a specific trading strategy, although Darva’s Box Theory was at the heart of Darvas’ trading. Instead, the book is an odyssey about a struggling trader that turned it around based on good decision making, persistence, and good trading records.

Who is Nicolas Darvas?

Nicolas Darvas was born in 1920 and died in 1977. But in his short life, he probably experienced a lot more than most people can only dream of.

He was Hungarian and started studying economics in Budapest, but fled when the Nazis and Soviets started fighting for control. He went on to become a professional dancer with his sister and emigrated to the US.

Nicolas Darvas is not famous for his dancing career, even though he toured with both Bob Hope and Judy Garland. Darvas is practically only known for his book called How I made $2,000,000 In The Stock Market.

Darvas’ trading strategy was a mix of being a short-term trader and a long-term investor. He struggled to start with, just as most traders do. It was not until he had lost some money he sat down and studied his buying and selling. He then developed his “Box Theory”:

Nicolas Darvas’ strategy: The Box Theory trading strategy

Darvas got famous after he published his book that described his Box Theory. This theory or strategy is pretty basic and simple, yet it was very powerful at the time (we doubt it works in today’s markets). How do you use Darvas Box?

The logic is that the share price moves up and down in boxes. After a rise, the price tends to consolidate in a “box” before it subsequently moves up or down outside the box or vice versa. This is all there is to it except for two more things: stop-loss and volume. What is price minimum in Darvas Box? Darvas didn’t mention, so it’s up tp ypu-

When the share price moves out of the box it needs to have increased volume. Indirectly the strategy was about trend-following because he used stop-loss strictly. The win ratio was around 50% but the bigger gains of the winners more than made up for the losers.

Was this a quantified strategy? No, he used stocks he believed had favorable fundamentals.

As you probably have guessed by now, he went on to make two million dollars via his Box Theory. This was a huge amount of money back then, and it’s even a very nice nest egg in today’s money.

Regrettably, the Box Theory is not very well explained. We suspect his trading was much more reliant on his “gut feel” than what he tries to communicate throughout his book.

The keys to Nicolas Darvas’ success

Before Darvas went on to make much money he struggled, as most traders and investors do. How did he manage to turn around losses to huge profits?

He won and lost several times, but his humility and ability to analyze improved his skills. Darvas was good at making decisions and not judging the outcome of the decision, something you can read more about in Annie Duke’s Thinking In Bets. Darvas kept a trading journal that helped him immensely. He analyzed his trades and behavior and he made rational adjustments based on his trading journal.

Another key for success was Nicolas Darvas’ persistence. Most people get scared away after setbacks and losses, but Darvas was confident in his abilities if he just kept going and learning.

Nicolas Darvas realized early on that he had to take responsibility for his actions and trading. Nobody would teach him how to invest and trade, and certainly not brokers and advisers. Part of his reason becoming successful was that he used book writing as “therapy”.

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