Million Dollar Trend Trading Strategy
Improvised strategy on the method Nicolas Darvas used. Author of “How I Made $2,000,000 in the Stock Market”
Flipzone is a concept that is very similar to the strategy called DARVAS BOX strategy. Which was developed by Nicolas Darvas.
Nicolas Darvas (1920–1977) was a dancer, self-taught investor and author. He is best known for his book, “How I Made $2,000,000 in the Stock Market.”
If you consider inflation. It is equivalent to 46 Million.
Support And Resistance
The Darvas Box trading strategy was based on finding support and resistance in the stock price. If you pick up the chart of any instrument(Future,Stock,Option,Bond). You will see that there were multiple periods of time where the instrument/stock traded within a range L to R. This is also called the distribution/accumulation phases of the stock.
These phases can last upto 6 months or more in rare scenarios. Darvas called these boxes. And whenver the price moved beyond the box range. He would buy or sell (long or short) the instrument with a stop-loss order within or at the other extreme of the box range.
Darvas would then look athe surge in volumes during these breach of ranges. Which he used as confirmation. To gain an extra edge.
The Box trading strategy works extremely well on bigger time frames. But on time frames less than daily it does not perform as well.
Flizone: Improved Darvas Box
This is a strategy which many use but no name has been coined for this kind of trading.
I like to call these flipzones. As the name suggests, these are regions/boxes/zones from which price flips towards either side to reach the next flipzone. Flipzone like in Darvas Box strategy are price points from where stock took resistance or supoort multiple times.
In the above chart you can see that BANK NIFTY has made a flipzone(red coloured region) from 37780–37670. You can see the number of times price flipped from this region.
The more the number of times price flipped. The more credible the zone becomes.
Another important factor that you consider when you do flipzone trading is the range of the flipzone. The larger the price range of the flipzone the stronger the moemntum of breach.
Third and final factor is time spent within the flipzone. If price is staying within the price range for a long time the flipzone credibility increases.
Drawing flipzones can be very tricky. You can get a free charting web interface for flipzones here shree.capital/chart with live data.
Some Live Examples from NSE
Nestle
If you look at the chart of Nestle. It has formed a yellow region from where price has reveresed multiple times. Also the yellow flipone is significantly bigger than the green and purple ones. You can go long on Nestle with a stoploss of less than two percentage and exit at the next significant flipzone. This make a good trade because the range stop-loss is small. And we are in the greatest bull market of all time so you want to go long rather than short and you will win with a higher probability.
TCS
This is hourly chart of TCS. Tech stocks have been an outperforming sector since the pandemic crash. If you look at the hourly chart TCS has made retest of the flipzone which it broke out in the past. And in the recent candles it tried to break through the purple region but was met with a huge amount of buy orders since ther is long wick red candle. This can be considered for long too if we also take into the consideration that all tech stocks are still flying. Stoploss can be kept near the extreme of the green region or around 2%.
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