The Nicolas Darvas Box Theory Can Backfire If You Get Over Confident

The Nicolas Darvas Box Theory Success Story (part 24)

My problem of buying automatically at what I thought was the right time was settled.

By this time my nicolas darvas box theory and its form of application were firmly planted in my mind and on three consecutive occasions I used it successfully.

I bought ALLEGHENY LUDLUM STEEL when it appeared to me to be going into the 45/50 nicolas darvas box. I bought 200 shares at 45 & three quarters and sold them three weeks later at 51.

I also bought 300 shares of DRESSER INDUSTRIES when it seemed to be entering the 84/92 nicolas darvas box. I bought at 84, but as it did not seem to be making the right progress through the box, I sold at 86 & a half.

Then I bought 300 shares of COOPER-BESSEMER at the bottom edge of the 40/45 nicolas darvas box at 40 & three quarters and sold at 45 & a half. My profit on these three transactions was $2,442.36.

This gave me a great deal of confidence, but then I received a slap in the face, which proved to me that I needed more than my nicolas darvas box theory alone.

In August I bought 500 shares of NORTH AMERICAN AVIATION at 94 & three eighths because I was sure it was about to establish itself in a new nicolas darvas box over 100. It did not. Almost immediately it turned around and started to fall back. I could have sold it when it gave up a point.

I could have done the same when it lost another point. But I decided against it and stubbornly held on. My pride did not let me act. The prestige of my nicolas darvas box theory was at stake. I just kept saying this stock cannot go down any further. I did not know what I learned later, that there is no such thing as cannot in the market. Any stock can do anything. By the end of the next week, the profit from my three previous operations was gone. I was back where I had started.

This experience, as I see it, was an important turning point of my stock-market career.

It was at this point that I finally realized that:

1. There is no sure thing in the market - I was bound to be wrong half of the time.
2. I must accept this fact and readjust myself accordingly - my pride and ego would have to be subdued.
3. I must become an impartial diagnostician, who does not identify himself with any theory (even the nicolas darvas box theory) or stock.
4. I cannot merely take chances. First, I have to reduce my risks as far as humanly possible using my nicolas darvas box theory.

The first step I took in that direction was to adopt what I called my quick-loss weapon. I already knew that I would be wrong half of the time. Why not accept my mistakes realistically and sell immediately at a small loss? If I bought a stock at 25, why not at the same time order the stock to be sold if it returned below 24? 


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