Friday, October 26, 2007

Thank God for Problogger

A few additional distinctions from the Problogger article on Darvas box theories (again these are my scribled notes)

Thank God for Protrader. Within their Darvas box tutorial they perfectly explain how to create a box:
Search for an all time high in a stock and if that price is not exceeded for a predetermined number of days –for Darvas it was 3- then that was the top of the box.
To create the bottom of the box we search for the lowest price not touched or exceeded for the last 3 days i.e. we do the same thing as finding the top of the box but in reverse.

I must create a trading rule regarding allowable capital risk per trade.

Calculate one’s break even

(Total cost of trading=(Parcel size*stock price)+ entry brokerage+ exit brokerage)/Parcel size
Here one can calculate the number of shares they need to buy and the price they require to break even-have no loss!!!

How to select an industry?
Darvas tended to trade in ‘expensive’ stocks believing you should buy dear and sell dearer and liked to invest in emerging and expanding industries.