Breakouts · Beginner
Darvas box strategy
Buy a strong market when it breaks out of a consolidation box near its highs, and move the stop up under every new box.
Nicolas Darvas was a professional dancer who, in the 1950s, turned a small stake into about two million dollars while touring the world. He described his method in "How I Made $2,000,000 in the Stock Market" (1960). It combines momentum, consolidation boxes and strict stop losses.
Why it works
Strong markets do not rise in a straight line: they rise, pause in a tight range, then rise again. Each pause forms a "box". Breaking the top of the box shows that demand has absorbed the sellers again.
Darvas only bought markets near their highs, never "cheap" ones, and always with a stop just below the box.
The rules
Setup
- The market is making new highs (52-week highs for stocks; multi-week highs on other markets).
- Draw the box: the top is a high that is not exceeded for three candles; the bottom is the lowest low after that top that holds for three candles.
Entry
- Buy stop just above the top of the box.
- Darvas looked for rising volume on the breakout.
Stop loss
- Just below the bottom of the box.
Exit and management
- When a new, higher box forms, move the stop to just below its bottom.
- Exit when the stop is hit: the system never sells at a target.
Filters that improve it
- Only markets in a clear uptrend; Darvas later added a fundamental filter (rising earnings) for stocks.
Worked example
Illustrative example: a stock rallies to $52 and then trades between $47.50 and $52 for two weeks, forming a box. A buy stop at $52.10 triggers on heavy volume, with the stop at $47.40. The stock rises to $60 and forms a new box between $56 and $60; the stop moves to $55.90. When the next box breaks down, the stop exits at $63.90.
Illustrative numbers, not a recommendation.
Common mistakes
- Drawing boxes on markets that are not near their highs.
- Moving the stop down when the box breaks: the box bottom is the line in the sand.
- Buying inside the box in anticipation of the breakout.
How to practise it
In Candlemind use the rectangle tool to draw the box on 1H or 4H after a strong move, and a pending buy stop above it. Keep the stop under the box and trail it manually as new boxes form.
Pre-trade checklist
- Market near its recent highs
- Box drawn (top/bottom held 3 candles)
- Buy stop above the box top
- Stop just below the box bottom
- Trail under each new box
Frequently asked questions
Is the Darvas box still useful?
The principle, buying strength out of consolidation with a tight stop, is the basis of many modern momentum methods such as O'Neil's and Minervini's.
How big should a Darvas box be?
There is no fixed size: it is defined by where price pauses. Tighter boxes give tighter stops.