Introducing a couple of additional advanced Nicolas Darvas entry tactics that a trader might use when trading the Modern Darvas method. Now in my opinion these two additions are contrary to the original Darvas' methodology, that said keeping in mind this course is the definitive guide to Nicolas Darvas trading, I felt it necessary to include them.
The two extra tactics are the aggressive entry and the delayed entry. Each entry tactic is suited to different types of traders and trading situations.
When figuring out which entry tactic to use, it is best to consider the situation. For example, suppose a trader finds a stock that has already formed several Darvas boxes. The classic Nicolas Darvas entry tactic is to buy as soon as the stock price breaks out of the current Darvas box, and the Modern method is to buy the day after the stock closes above the Darvas box. An aggressive entry into the stock might be more beneficial and profitable, than a classic entry. Both of these methods would cause a trader to lose a portion of the profits in this situation. The alternative Nicolas Darvas entry tactics exist to allow traders to enter into a trend in such a way that the trend yields more profit.
Aggressive entry occurs when a trader buys a stock before it has broken out of its Darvas box. The trader buys in anticipation of the stock breaking out of its box. Buying before the breakout is risky because there is no assurance that the stock will actually break out of its Darvas box. The trader is making a guess that it will. The advantage to buying before the breakout is that the entry price will be closer to the stop-loss order.
Another effect of buying before the breakout is that a trader can possibly capture more profit from the beginning of the trend. However, in today's volatile markets, a stock is almost as likely to plummet as to rise. Buying before the breakout puts the entry price closer to the stop-loss order. Should the stock plummet, the trader will lose less money.
On the other side of the spectrum, delayed entry is when a trader will not buy on or directly after the breakout, but will wait for the price to come back down. In a trend where a stock is just starting to form Darvas boxes, this tactic can increase the amount of profit. Instead of buying on a high, the trader will buy on a low, most likely one of the lows used to form the next Darvas box. This entry point is closer to the stop-loss order set by the previous valid Darvas box and minimizes any loss should the trend fail.
The two extra tactics are the aggressive entry and the delayed entry. Each entry tactic is suited to different types of traders and trading situations.
When figuring out which entry tactic to use, it is best to consider the situation. For example, suppose a trader finds a stock that has already formed several Darvas boxes. The classic Nicolas Darvas entry tactic is to buy as soon as the stock price breaks out of the current Darvas box, and the Modern method is to buy the day after the stock closes above the Darvas box. An aggressive entry into the stock might be more beneficial and profitable, than a classic entry. Both of these methods would cause a trader to lose a portion of the profits in this situation. The alternative Nicolas Darvas entry tactics exist to allow traders to enter into a trend in such a way that the trend yields more profit.
Aggressive entry occurs when a trader buys a stock before it has broken out of its Darvas box. The trader buys in anticipation of the stock breaking out of its box. Buying before the breakout is risky because there is no assurance that the stock will actually break out of its Darvas box. The trader is making a guess that it will. The advantage to buying before the breakout is that the entry price will be closer to the stop-loss order.
Another effect of buying before the breakout is that a trader can possibly capture more profit from the beginning of the trend. However, in today's volatile markets, a stock is almost as likely to plummet as to rise. Buying before the breakout puts the entry price closer to the stop-loss order. Should the stock plummet, the trader will lose less money.
On the other side of the spectrum, delayed entry is when a trader will not buy on or directly after the breakout, but will wait for the price to come back down. In a trend where a stock is just starting to form Darvas boxes, this tactic can increase the amount of profit. Instead of buying on a high, the trader will buy on a low, most likely one of the lows used to form the next Darvas box. This entry point is closer to the stop-loss order set by the previous valid Darvas box and minimizes any loss should the trend fail.
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