DIG Darvas Box
Background information on Darvas Box:
The Darvas Box trading system was developed in 1956 by Nicolas Darvas; it was originally designed to identify key breakouts that usually lead to strong trends.
The system was intended for use only in bullish markets and for weekly and daily charts. Our enhanced version provides a new functionality that allows the indicator to work in both bullish and bearish markets and to provide signals on both high and low time frames, such as hours and minutes.
A long Darvas Box is created when the price pulls down and then straight up and the entire price range consolidates into a form of box. The Darvas Box lines are extended until a potential buy signal is created when the price breaks through the top of the box or a potential sell signal is created when the price falls below the bottom of the box.
A short Darvas Box is created when the price pulls up and then straight down and the price range consolidates into a form of box.
GOOG Daily Chart: On the left you can see that a long (bullish) box is formed when the price pulls down and then straight up; the lines are extended until one of them is broken (in our case, the bottom line is broken).
On the left you can see that a short (bearish) box is formed when the price pulls up and then straight down; the lines are extended until one of them is broken (in our case, the top line is broken).
How Do I Use the Darvas Box Indicator?
The Darvas Box indicator works well as a breakout indicator – in either direction – long or short. It has great control over its sensitivity and how many or few boxes you see – based on volatility. It identifies consolidation and gives you a visual marking on the chart, making it easy to see a breakout in either direction.
S&P 500 Daily Chart: On the left you can see that a potential sell signal is created when the price falls below the bottom of the box. Note that about 5 bars before the real break a false breakout takes place but is dismissed by the indicator (the indicator filters false breakouts using minimum breakout size inputs).
In the right side of the box, you can see that a potential buy signal is created when the price breaks through the top of the box.
The Darvas Box as Support and Resistance
Another way to use the Darvas Box is in support and resistance areas. Once the box is formed, its top and bottom often serve as strong support and resistance areas. The Daravs Box should be put on high time frames such as weeks or days and the box values should be used as strong support and resistance lines on lower time frames.
GBPUSD Forex 15 Min Chart: Let’s start with the box on the left. You can see that almost immediately after it is formed its lower line is tested and it serves as a great support level; from there, the price rises up and bounces off the top of the box.
Our Unique Darvas Box Filter
The original Darvas Box technique only works in bullish markets. We have taken our Darvas Box a few steps forward. You can now receive both bearish and bullish boxes on your chart.
You can control what boxes you want to see, only long or only short boxes, or you can choose to have both.
If you choose to see both, the code automatically uses a moving average (you can choose to use a simple or an exponential moving average) to choose between long or short boxes. When the price action is above the MA, only long boxes will be plotted; when the price action is below the MA, only short boxes will be plotted. This is a great tool that is set according to your personal trading style.
The boxes are formed according to the MA length. You can also choose between simple moving average or exponential moving average.
The Darvas Box indicator is suitable for both long-term traders and short-term traders. Regardless of whether you are a short-term or long-term trader, you can adjust the MA length to your style.
- Unique filter for bullish and bearish markets.
- New functionality offering full support for both low and high time frames.
- Filter box based on volatility.
- New Feature – Filter false breakouts.