Nicholas Darvas: Trend Trader

From a Time Magazine article in 1959:

Darvas places his buy orders for levels that he considers breakout points on the upside. At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. “I have no ego in the stock market,” he says. “If I make a mistake I admit it immediately and get out fast.” Darvas thinks his system is the height of conservatism. Says he: “If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?” If he has a big profit in a stock, he puts the stop-loss order just below the level at which a sliding stock should meet support. He bought Universal Controls at 18, sold it at 83 on the way down after it had hit 102. “I never bought a stock at the low or sold one at the high in my life,” says Darvas. “I am satisfied to be along for most of the ride.”

I can’t recall the last time the financial press reported that a 1959 Time Magazine article might actually be good for one’s portfolio health.

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11 thoughts on “Nicholas Darvas: Trend Trader

  1. I finished reading this book for the first time a few weeks back. A fantastic read. This guy made his decisions using seriously delayed data!

  2. The only thing that I find surprising about this is that it is reported almost as a novel, unique approach to trade markets.
    As always, I still have a hard time digesting any alternative to this logical trading methodology. I literally do not understand the position or arguments against trend following.
    I hope I am not suffering from intellectual solidification, but no matter what the strategy or approach (even fundamental), at some time they need to buy (or sell) a stock or future at a certain point, have a stop-loss and have some sort of plan to maximize profits. What am I missing? What am I not seeing?

  3. Mark, I do not think Darvas made his trading decisions using delayed data.

    He reportedly used Barron’s for a general review of the stock market. The magazine also helped him to spot what he called unusual activity in trading. Today we would say he was looking for a massive surge in trading volume combined with a rise in price.

    Since Darvas was traveling around the world in the late 1950s, he used cabled quotes (daily high, low, close) to define so-called boxes, in which the stocks seemed to fluctuate. To be prepared for breakouts (a move into higher “box”), he used real-time orders (on stop orders), making sure his orders were fulfilled in case the stock move higher.

    What is striking to me is that all successful stock market operators in the past were kind of trend followers. Take Jesse Livermore or Bernard Baruch. Or William O’Neil, founder of the Investor’s Business Daily and his CAN SLIM investing approach. But it has its logic..

  4. And like he mentions in his book, the period where he started losing was when he got too close to the market and thought he knew better, and strayed away from his winning formula, let the market go where it will and ride onto its coat-tail!

  5. Darvas’s approach is most akin to CANSLIM in my opinion. The book nicely illustrates the growth of a trader which is something I could relate to.

  6. “I buy a copy of afternoon Wall Street closing prices, i tear out the pages giving the day’s quotations and throw the rest of the financial section away. I do not wish to read any financial stories or commentaries”

  7. @Rob, fundamentals are interesting to know but are basically irrelevant because it’s all incorporated in the price. You don’t need to know about certain sock ticker a zilch more than it’s trending path.

  8. @Patrick. Don’t get me wrong, I understand the role of fundamentals in a good trading plan (zilch). I just remember from Darvas’s book that he restricted his stock selection to the high tech companies of his day like rocket manufacturers for example.

  9. Read the book and think that most of his (entire) strategy is pure B.S. Still, it has some really good advices none the less.

  10. Darvas provides the most succinct description of TF ever written. Add a few of today’s tools and a bit of diversification to what he says and you will make a lot of money following his techniques.

    Especially note, as mentioned above, that the further away he got from the “noise” (hello Jim Cramer, MSNBC, Bloomberg, WSJ!!) the better he did.

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