Trading strategies with the Darvas boxes

Are you interested in trading in Darvas boxes? The right strategy for binary options trading Read strategy guide now

In the last post we got to know the infamous Darvas boxes. These are patterns that Nicholas Darvas developed in the 1960s.

As a reminder, the interpretation and the rules for the formation of the boxes were as follows:

  • It will a lower and upper limit is defined.
  • The limits then arise when three lower / higher highs / lows are formed on a high / low.

At the Interpretation is a skill for interpretation. Traders can use the boxes as continuation formations, i.e. trade the breakout in the direction of the trend, as shown in the picture. In other cases, the Darvas boxes can also be viewed as reverse formations. This is the case if the trend breaks out. And that's exactly what we want to build our strategy on.

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Double strategy with the Darvas boxes

According to our knowledge, we want a double strategy for retail use with binary options. That means we will either act in the trend direction or in the opposite direction. So our first rules are:

  1. We trade both call and put options on a 15 minute basis.
  2. A call option is bought when an outbreak occurs the darvas box is up.
  3. A put option is bought when the break out of the darvas box is down.

For this we need further rules that cover the whole thing optimize something. We do this as follows: Since we want to focus on dynamically rising trends, we will initially assume only two lower highs or higher lows for the definition of a box. We maintain this rule in our trading system:

  1. A Darvas box is defined by two limits, which have a high and a low with two lower highs and higher lows.
  2. Die Box is valid until one of the limits has been triggered.

The following chart shows how well trading alone could have worked according to these rules.

The first box was after broken at the top. Since we assume that the larger trend will continue in this case, the runtime could have been between half an hour and two hours.

The second box was defined very quickly, but there was no breakout at first. Nevertheless, according to the rules, the box is valid as long as there is no breakout. This occurred following downwards, making the box a reversal and not a continuation formation. Here, too, the runtime would be between 30 minutes and an hour.

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In order to further optimize the entry points, we could define further rules. For example, we could say that options are only bought when the outbreak has occurred and there is a retest to the box afterwards. In the present case, it would also have worked out well. It should only be noted that the retest does not stop at the box with pinpoint accuracy, but can also climb or fall back into the box at short notice, which is completely normal.

With the retest we ensure that we get a good target price and the option runs quickly "in the money". We have optimized our chances of winning and risk management at the same time.

Try the strategy with the Darvas boxes: 5 steps to the first trade

We explained what is important in the trading strategy with the Darvas boxes, But what should you basically consider when trading binary options? How do you best trade the financial instruments? In order to offer you a guide to trading binary options, we have summarized the most important steps to the first trade in the following slideshow in a clear and easy-to-understand way for you.

Conclusion - simple and effective

Basically, the Darvas boxes are not technical indicators, but pattern recognition tools. As we have seen, they can still be very effective. Another advantage is that they enable a double strategy, in which traders buy both call and put options.

A property of good traders is to be able to adapt to changing circumstances very quickly. With the double strategy, this ability can be practiced and converted into your own advantage in trading.

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