Technical Analysis and Charting Products by Modulus Financial Engineering

Modulus Financial Engineering
“Trading Edge” Newsletter for October 2003

This issue 3-2003: “How I Made $2,000,000 In The Stock Market”

The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in consideration of your financial condition. In no event shall Modulus Financial Engineering be responsible for your trading losses.

Darvas Boxes – The Astonishing Secret!

Nicholas Darvas was a famous dancer in the 1950’s who wrote a book entitled “How I Made $2,000,000 In The Stock Market”. This was a non-fiction book – a real, true story about how Mr. Darvas started out with around $20,000 and turned it into over $2 million by looking through the finance section of newspapers in the evenings and applying his secret formula.

The author describes his investing style as a narrative. He takes you through his investing evolution step-by-step, detailing his actual experiences. I must say, his writing style made the book very easy to follow and understand. The book emphasizes both technical and fundamental criteria – both key ingredients to proper trading and investing.

Not too many people have even heard of Darvas boxes before. You have to admit – you’ve probably never heard of Darvas boxes either. I learned about Darvas boxes recently and have been experimenting with them. Today, a client of Modulus FE called to chat with me. He is a famous trader, a well-respected man and a wonderful client. While we were talking I thought I’d mention about Darvas boxes. To my amazement, he had never even heard of them! Darvas what? Never heard of it!

I first learned about Darvas boxes when a client of ours requested the calculations and graphics to be programmed into our StockChartX ActiveX component. It took us more than one go at it but we did manage to get it right after exhausting just about every bit of information we could get our hands on. I actually had to make a trip to our local library, believe it or not. The information on the web is sparse and inaccurate. I spent the next three days in solitude just playing with the boxes, running several tests against them. Yes, they are amazing. I am now experimenting and back testing several systems based solely upon Darvas boxes. I am also experimenting with a Darvas scanning system, which scans thousands of stocks each day. If this works out then you can expect to see it listed on our site! You just have to try the boxes – they are amazing!!!

UPDATE: Our Darvas Box Scanner is now available. Click here for more information.

How To Use
Darvas boxes are dynamic trading range boxes that are based upon a complicated state machine algorithm. These boxes have two areas. The bottom part is a stop loss area and the top part is the “break out” area. When prices break above the top of the box, Mr. Darvas would buy if the stock was making new 12-month highs on high volume. He would then stay long and add new positions as new boxes developed. When the price of the stock dipped below the stop-loss section of the box (a percentage of the price, just below the bottom of the box), he would take profits and move on to something else. If you're wondering what Darvas boxes look like, take a look here. Look at the 2nd picture on the bottom-left.

Formula
While Darvas boxes don’t look too intimidating, I wouldn’t hesitate to say that Darvas boxes are one of the most difficult calculations I have come across in quite awhile. The entire process is like a complex state machine. The Darvas box uses several steps to identify a top and bottom, or acceptable trading range. Explaining how these boxes are calculated could easily consume several pages. Your best bet would be to purchase Mr. Darvas’ book from Amazon, or purchase our StockChartX component (with or without the source code). If you are not a software programmer and would simply like to use Darvas boxes for your own trading, check out our new Darvas Box Scanner.

We Make It Easy
Alternatively, you can skip the hurdles and simply call one method of StockChartX: ShowDarvasBoxes()
StockChartX is the only charting component in the world that calculates Darvas boxes. Furthermore, there are only three complete end-user applications in existence that calculate Darvas boxes, and one of them does it incorrectly!

For software developers only: To purchase StockChartX, visit http://www.modulusfe.com/stockchartx/
The component comes with our 30-day risk-free product guarantee.
Use it in Excel, VB, VB.net, C#, C++, Delphi or FoxPro - for personal use or commercial use.

For end users only: See http://www.modulusfe.com/darvas/

To get a copy of the book “How I Made $2,000,000 In The Stock Market”:

Yours Truly,
Tom Wong
Modulus Financial Engineering
t.wong@modulusfe.com
MCSD, MCP

Copyright(c) 2010 by Modulus Financial Engineering