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Definition
The Darvas Boxes were taken from the pages of Nicolas Darvas' book,
How I Made $2,000,000 in the Stock Market. The boxes are used to
normalize a trend. A "buy" signal would be indicated when the price
of the stock exceeds the top of the box. A "sell" signal would be
indicated when the price of the stock falls below the bottom of the
box.
Example
What Is A State Machine
The best way to teach you how to draw the Darvas Boxes would be to
illustrate to you how a computer program would draw the boxes. I
used a "state machine" in my program to draw Darvas Boxes. The
Darvas Boxes are draw with a five-state state machine. If it sounds
complicated, it's not.
When driving a car down the street, you are in a given state. When
you receive input, you can remain in the state of driving down the
street, or you can change states. Let's say you are driving down
the street; we will call that the "driving state." You receive some
input; you see a stop sign. Using your eyes, and ears, you begin to
evaluate several decisions, and finally you move to the "deceleration
state." After further inputs and decisions, you then move to
the "stop state." From the "stop state," you receive more input and
make more decisions; you may enter the "acceleration state."
Lucky for you (and me) I'm not going to diagram a state machine for
driving a car. That would take a lot of states, and a lot more
decisions. I am going to diagram a five-state state machine for
drawing Darvas Boxes. When you diagram a state machine, you use a
state diagram. Your only inputs will be the daily high and low
selling prices of a stock. That's not too bad, is it?
The five different states are represented with rectangles. The
rectangles are numbered from one through five. A state rectangle will
also require you to do something. This example of a state rectangle
tells us to set the BoxTop to Today's High.
The decision box is a morph between a diamond and a rectangle. A
decision box will ask you a question about the input you received. If
the answer to the question is "yes", then follow the green arrow. If
the answer to the question is "no", then follow the red arrow. Our
example asks, "is the BoxTop greater than today's high?"
Darvas Box State Diagram
A Quick Summary
We are going to spend at least three days finding and validating the
top of a box (states #1, #2 and #3), and we are going to spend at
least three days finding and validating the bottom of a box (states
#3, #4 and #5). Once we have reached state #5, we have a valid box
top and a valid box bottom -- a Darvas Box. Once we have reached
state #5, we simply wait until we get an input price greater than the
top of the box or less than the bottom of the box.
A Little More Detail
Once you have selected a stock to track, you will need to obtain the
high and low selling price of the stock for the day -- your input.
On day one, you start off in "state #1." This state tells you to
set the BoxTop to Today's high. Now what? Nothing, you are done
for the day. Only one state per day.
>From state #1, move to the decision box. Ask yourself the
question, "is the BoxTop that I saved from state #1 greater than
today's high?" If the BoxTop that you saved from yesterday is bigger
than today's high price, go to state #2 and keep the BoxTop from
yesterday. If the BoxTop that you saved from yesterday is smaller
than today's high, go back to state #1, and set the BoxTop to today's
high (a new BoxTop).
>From state #2, move to the decision box. Ask yourself the same
question, "is the BoxTop that I saved from state #1 greater than
today's high?" If the BoxTop that you saved from two days ago is
bigger than today's high price, go to state #3 and keep the BoxTop
that you got two day ago, plus you now get to set the BoxBottom to
today's low. If the Box Top that you saved from two days ago is
smaller than today's high, go back to state #1, and set the BoxTop to
today's high (a new BoxTop).
>From state #3, move to the first decision box. Ask yourself the same
question, "is the BoxTop that I saved from days past greater than
today's high?" If today's high is greater than the BoxTop, you have
to go all the way back to state #1. On the other hand, if the BoxTop
that you saved from days past is still greater than today's high, you
get to move to the second decision box. Ask yourself the
question, "is the BoxBottom that you saved from yesterday lower than
today's low selling price." If it is, you can move to State #4 and
keep yesterday's BoxBottom. On the other hand, if today's low is
lower than the saved BoxBottom, you go back to state #3, and set the
BoxBottom to today's low.
State #4 is much like state #3. Move to the first decision box, and
ask yourself "is the BoxTop that I saved from day's past greater than
today's high?" If today's high is greater than the BoxTop, you will
have to go all the way back to state #1. On the other hand, if the
BoxTop that you saved from days past is still greater than today's
high, you get to move to the second decision box. Ask yourself the
question, "is the BoxBottom that you saved from two days ago still
lower than today's low selling price." If the BoxBottom that you
saved is higher than today's low, you have to go back to State #3.
Once in State #3, don't forget to set the BoxBottom to today's low
selling price. If you are lucky, you will have a BoxBottom lower than
today's low, and you will get to move to state #5. In state #5, you
have a valid BoxTop and a valid BoxBottom.
Once you are in state #5, you have created a Darvas Box. Simply wait
until you get a day's high selling price that is greater than your
BoxTop (a buy signal) or a day's low selling price that is lower than
your BoxBottom (a sell signal).
Using the state diagram, you should be able to follow the candle
stick chart to see how the Darvas Boxes are drawn.
Copyright ©1996-2001, GerryCo. All rights reserved. This material
is for personal use only. Republication and redisemination,
including posting to news groups, is expressly prohibited without the
prior written consent of GerryCo.
Last updated on June 2001
> Tip 1: Read Darvas' book.
>
> Tip 2: Define what is a "Darvas box".
>
> HHP
> =======================
>
> At 09:10 PM 18/01/2004, you wrote:
>
> >Hi,
> >
> >Does anyone have or know of Darva Box drawing formula
> >for Amibroker ?
> >
> >Please post any tip ...
> >
> >Thanks !!
> >
> >Vincent
> >
> >
> >
> >
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