Book Reviews, Trading

Book Review of How I Made Money Using the Nicolas Darvas System Which Made Him $2,000,000 in the Stock Market

This book with the extremely long title is written by Steve Burns. This is a pretty short book with only 67 pages where Steve Burns wrote about how he successfully applied Darvas’ techniques.

If you have read the books written by Darvas, there will be a fair bit of repetition. I always prefer reading books from the source because you tend to pick out more from the author’s writings, and you are able to interpret for yourself what the author meant.

Some points made by Burns are captured below.

How to Outperform the Market

  • To quantify this in technical terms, the best technique I have observed is simple moving averages.
  • Sell and go to cash when the S&P 500 dips below its 200-day moving average. This is the best sign of a bear market.
  • Do not buy back in until it crosses above a 200-day moving average.
  • This one system doubles the return of stocks versus just buying and holding.

Hard Stops

  • In Darvas’ third book he advises never to lose more than 10% on a losing stock and never to give back more than 20% in profits on a winning stock.
  • However, most price boxes are less than 10%, and the tops of previous boxes for winners are usually far less than 20%. I would advise using these percentages as hard stops.

Trade in Trending Markets Only

  • There is danger in volatility and in a market that moves up and down violently with little trend or reason.
  • Trade in trending markets only and not in range bound markets if you want to trade like Darvas.

Trading Breakouts

  • If a stock is in a $90/$95 box, you would purchase the stock at a breakout above $95.
  • Set a buy stop at $95.01, and a stop loss at $94.99.
  • If the stock is a Darvas stock then it should not retrace into the old box.
  • If the stock breaks through on lower than average volume, that is a danger sign and is not a Darvas stock.



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