Darvas Box Theory Examples
In the following charts I hope to elucidate the idea of a Darvas box a little more. All the charts below were retrieved from Yahoo Finance. I just printed it to PDF and marked over them.
The chart below is for Cameco (CCJ), a uranium producer. I did this trade back in 2004, when I was just starting out learning about the Darvas box theory.
As you see, the boxes I have drawn were clearly defined. Take careful notice of the fact that I did not conjure up this stock ex post. At the date of this chart, it was a live chart that I traded on (no hindsight BS here).
Another example was Urban Outfitters (URBN), shown here below. As you can see, the Darvas boxes for this stock were a bit more murky. In particular, the second box was penetrated two days in a row, yet I drew the box (in late May) based on the original high point that was established mid-February.
Of course, not every stock I traded worked out (nothing is perfect). From the same period, observe Middleby (MIDD) as a failure:
The point of the charts above is not to show that I am a good or a bad stock picker. Rather, they serve only to show you what I think the Darvas boxes should look like. In case you are wondering, I am still trading with the Darvas box theory system. Observe for example Guess (GES), which I got into (via options) earlier this year:
Several things in the picture above are worth noting. First is that I had missed GES for a long time before finally getting into it. Second, the first box I drew (Auguest 2006) was a failed box. Third, the final box before I bought shows that GES penetrated below the initial lower box boundary. According to Darvas he would not have purchased this stock, if he strictly followed his rules. However, similar to his Lorillard example (page 88 in my copy), I stuck with it and it worked out in the end.