According to legend, Nicolas Darvas in the 19050s developed his own strategy for determining the price corridor, with which he was able to increase the deposit from 10 thousand to 2 million dollars. USA for 18 months. True or not, this is a rhetorical question, but the Darvas indicator remaining after it (Darvas box) is used today. Although this tool is more popular in the US, and in our region you can find strategies based on it. One of them is presented below. It may not be suitable for beginning traders, since it is important to understand the principle of building a corridor. The method of its construction is based on the definition of a new trend.
Darvas indicator: the essence and principles of application
The principle of construction of the Darvass indicator is as follows: first, the upper limit of the area is formed by the successive maximum price values until the current maximum is below the upper limit drawn at the moment (that is, the decline does not begin to appear). From the lowest price level of the current day, the lower border of the region begins to form. The essence of trade is the breakdown of the channel in one direction or another. If the price breaks through the upper limit, then a long position is opened with a stop-loss at the level of the lower limit. Conversely, when the lower line is broken through, a short position is opened with a stop at the upper limit.
In the proposed strategy, it is recommended to open a position only in the direction of purchase (the indicator gives a lot of false signals with these settings).
- timeframe – M15;
- asset – EUR / USD.
Darvas indicator Darvas Boxes does not require any manipulation of the settings. This version (to get it, write about it in the comments and we will send the template for free) is already fully optimized for trading.
The condition for opening a long position: the candle closed at least 3 points below the red line of the channel. On the next candle open position. Stop loss 10-15 points. Exit the market by trailing a stop of 5-7 points. Trade is not conducted during the publication of news, as well as during price gaps.
The Darvassa indicator can also be used on longer timeframes. To open short positions in Darvas Boxes, you need to make changes to the code so that the upper line of the corridor is built by analogy with the bottom. This is not the version of Darvas Boxes. In order for the signal to be stronger, you should wait until the body of the candle will be completely under the indicator. The indicator is complex, but local, that is, it has a narrow specific focus, but it can also be used on other pairs.