Is this the greatest break-out trade of the year?







 

A number of years ago I read a short trading book. Its a very basic book, covering a rather basic stock trading system. It was developed by a guy who was not a hedge fund manager, broker or Wall Street insider, yet it had a profound impact on my trading and beliefs about markets.

You can purchase the book here for only a dollar or two:

How I Made $2,000,000 in the Stock Market

The basic premise is that stocks trade in a range and should only be bought when they break the range or what has become know from the book- a Darvas box.

Read more about trading the Darvas box here: 

Darvas Box theory

NVIDIA soared to another new high yesterday and has been exceeding analyst expectations all year. For more context, read this article:

NVDA news article 05/06/2024

Looking at the historical daily chart of NVDA, it may have been a classic Darvas box/ break-out trade. This is text book example of a long term upside break out.

 

NVDA daily chart





As can be seen from this chart NVIDIA (NVDA) traded in a sideways range for most of 2023, bouncing off support and resistance levels on a number of occasions. Then in January 2024 it broke out of the range on a big volume spike, and never looked back. Remember that volume confirms price, so a break-out on a volume spike has a high probability of success.

Simple, I know, but highly effective in this case.

The break-out trading strategy remains a powerful trend following trading tool, as long as you cut the trade if it breaks below the trading range. It may also be prudent to reduce exposure should the trade fall back into the box (trading range) You can always increase again if the break-out resumes.

There are many ways to trade, but it might be worth your while reading Nicolas Darvas’s book to see if the Darvas box trade is worth considering.

Regards

Justin

 

P.S. If you need any help building out a break-out strategy or have any questions about the Darvas Box theory, feel free to reach out.

 

P.P.S. This article is not financial or investment advice, it is merely an observation and for entertainment purposes only. 


Further reading on Darvas:

Wikipedia page 


 

 

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