How Nicolas Darvas Made $2 Million in the Stock Market

“How I Made $2,000,000 In The Stock Market” Nick Darvas
N.B. Mark Crisp has read this book 100 times! (about 200 by now. MARK. This really is my bible of stock trading))

The Gambler

·My pet stocks were causing me my biggest losses
·The sudden drops after he has invested his money are one of the most mystifying phenomena facing the amateur

The Fundamentalist

·The stock that saved me I knew nothing about; I picked it for one reason only—it seemed to be rising

The Technician

·If a dignified matron would suddenly (jump on a table and do a wild dance), this would be unusual and people would immediately say: “There is something strange here—something has happened.” In the same way, if a usually inactive stock suddenly became active I would consider this unusual, and if it advanced in price I would buy it.
·It was evident that I had bought the stock at the wrong time…how to judge a movement at the time it happens?
·I began to realize that stock movements were not completely haphazard. As if attracted by a magnet, they had a defined upward or downward trend which, once established, tended to continue.
·Within this trend stocks moved in a series of frames, or what I began to call “boxes”
·They would oscillate fairly consistently between a low and a high point. These boxes began to exist very clearly for me
·This was the beginning of my box theory which was to lead to a fortune
·When the boxes of a stock in which I was interested stood, like a pyramid, on top of each other, and my stock was in the highest box, I started to watch it
·If it did not bounce up and down in that box I was worried…no bouncing meant it was not a lively stock
·I found that a stock sometimes stayed for weeks in one box
·The task was to define the frame exactly, and be sure the stock did not move decisively below the lower edge of the box—if it did, I sold it at once
·A reaction from 55 to 50 was quite normal while it stayed within its box; stocks are like dancers, they crouch, ready for the spring-up (and don’t go smoothly from 50 to 70)
·I learned that the 45 position in a stock after a 50 high point has another benefit—it shakes out the weak and frightened stockholders
·I came to see that when a stock was on a definite upward trend there was a feeling of proportion about its advance; if it was on its way, rising from 50 to, say, 70 but occasionally dropping back, that was all part of the right rhythm
·My broker told me I should have put in an automatic “on stop” buy order
·There is no such thing as cannot in the market—any stock can do anything

·I finally realized that:
oThere was no sure thing in the market—I was bound to be wrong half of the time
oI must accept this fact and readjust myself accordingly—my pride and ego would have to be subdued
oI must become an impartial diagnostician, who does not identify himself with any theory or stock
oI cannot merely take chances. First, I have to reduce my risks as far as humanly possible
· I decided to give “on-stop” orders to buy at a certain figure with an automatic “stop-loss” order on them in case the stock went down; this way, I figured, I would never sleep with a loss
·Because of commissions my profits had to be bigger than my losses
·I always sold too quickly because I am a coward; I knew the right thing to do but I invariably did the opposite
·Since I could not train myself not to get scared, I decided to hold on to a rising stock but, at the same time, keep raising my stop-loss order parallel with its rise. I would keep it at such a distance that a meaningless swing in the price would not touch it off. If, however, the stock really turned around and began to drop, I would be sold out immediately—this way the market would never be able to get more than a fraction of my profits away
·I realized I would never be able to sell at the top, and I would be a fool to sell an advancing stock, so when the boxes started to go into reverse, when the pyramids started to crumble—that was when I would sell…automatically!
·I knew I had to adopt a cool, unemotional attitude toward stocks; that I must not fall in love with them when they rose, and I must not get angry with them when they fell
·There are no such animals as good or bad stocks—only rising or falling stocks. I should hold the rising ones and sell the ones that fall
·I felt like a man who knew a room could be lit up and was fumbling for the switches

My Objectives

1.Right stocks
2.Right timing
3.Small losses
4.Big profits

My Weapons

1.Price & volume
2.Box theory
3.Automatic buy order
4.Stop-loss sell order

Cables

·I was 4 days behind Wall St movements (due to travels)
·I had a detached view
·I could not hear what people said but I could see what they did
·I realized how invaluable this was to me
·The inexplicable moves in my stocks usually coincided with some violent move in the general market
·I could not apply mechanical standards to the relationship between the D-J Average and the individual stock—judging this relationship was more like an art…like a painting
·I used the Average only in order to determine whether I was in a weak or a strong market; a general market cycle influences almost every stock

Analysis

I compared the prices of my stocks first with each other, then with the D-J Average, and after I evaluated whether I should buy, sell or hold. I did this automatically without deeper analysis, as I was reading now and no longer spelling out the alphabet
Diary

Whenever I bought a stock, I wrote down my reason for doing so. I did the same when I sold it. Whenever a trade ended with a loss, I wrote down the reason I thought caused it. Then I tried not to repeat the same mistake
§I started to see that stocks have characters just like people. Some of them I could not handle. Each time I bought them they did me an injury
§I began to take the view that if a stock slapped me twice I would refuse to touch them anymore
§The experience I gained through my cause-of-error tables became one of the most important of all my qualifications; I began to see that it is like driving a car…(you) have to develop (your own) feeling for driving…only through experience

For:
Mark Crisp
http://www.stressfreetrading.com