The Darvas trading method is a standard part of any successful trading tools – a unique method of trading stocks that was created in the late 1950s by famed dancer Nicolas Darvas. While on a world tour dancing before huge crowds, he spent his extra time buying and selling stocks and ended up turning his investment of $36,000 into over $2.25 million in just three years. Darvas spent numerous hours studying the ins and outs of the stock market and gaining an understanding of the risks when he wasn’t busy performing.
He knew that taking profits was how the way to achieving riches, and so, he began his career in trading in the Canadian stock markets, with his first stock purchase leading to a profit of over 200%. Soon after, though, he lost his profits and more. Yet, he didn’t give up on the stock market and returned to it a few years later via the New York Stock Exchange.
At this time, Darvas brought a stronger trading mentality to the difficult market. During the 1950s, it was most common to buy dividend-paying, high-quality stocks with the help of a full-service broker. The commissions on these stocks were high, which was preferable to traders at the time over capital gains. Darvas, however, brought his own unique theory to investing in the stock market at this time, without paying any consideration to stop-loss points or dividends.
In order to identify candidates for trading, Darvas used a fundamental filter. He searched for industries that he thought would be successful over the next 20 years. During the 1950s, these industries included missiles, rocket fuels and electronics, which would benefit from the development of revolutionary products, leading to incredible growth of earnings. Through his study of the stock market, Darvas believed that he could achieve a great profit if he could predict the next thing to catch on.
This is precisely where the Darvas trading method was first implemented. Darvas would watch a few stocks from each industry he believed would be successful in the next 20 years, focusing on higher priced stocks due to the commission structure of that time. As the price of stock would rise, the cost of trading per share declined very rapidly with the fixed commissions at that time.
This made Darvas realize that a significant amount of his profits would be lost if he wasn’t very careful. In today’s stock market, investors can use the price of stock as a filter to see what stability the company has, as stocks with very low prices often stay low in today’s market.
All in all, the Darvas trading method is a unique way that might still prove successful in today’s market. To implement the Darvas trading method, you would only buy into companies with highly promising growth and earnings prospects, while avoiding companies that are so big already that substantial growth from now on is very unlikely.
You should also keep in mind the overall market trends and make sure they are in an uptrend and check that the stock belongs to an industry that is doing well in the market in comparison with other industries. If you stick to the guidelines of the Darvas trading method, you might just find yourself a member of the Darvas Millionaires one day.
Saw your piece on http://www.StockTipsNetwork.com, it is very good and well written.
Thanks George