Let’s review the Darvas box and E-Mini trading
The tiny Darvas Box is a tool I rarely see on retail trader charts. On the other hand, it is not uncommon to see the Darvas on multiple charts from professional traders when entering an institutional trading room. This e-mini indicator is essentially an indicator, at face value, of short-term support and resistance. I like it because it provides a snapshot view of where you are likely to find your first contact with areas where traders have chosen in the past to reverse the market in the opposite direction. It also provides valuable information on possible breakdowns and breakdowns.
Why don’t business educators teach Darvas box theory?
Right off the bat, let me explain that modern box theory has been around for quite some time and there doesn’t seem to be a way to monetize this type of trading by developing and marketing a new indicator that resembles the old indicator. In today’s e-mini scalping environment, software sales are what have driven profits as loads of new traders look for the new “magic” indicator that will propel them into glorious profits. With few exceptions, what is needed in most traders’ plan is to learn to trade real-time indicators without the need to constantly rework old indicators and package them as something new, different, and differentiating. Therefore, this trading tool has been largely ignored by the retail class of traders in lieu of newer systems that are not as effective.
So what the heck does this Darvas box do that can help you trade?
I’m not a dyed-in-the-wool-break or fault trader; I have found the most success in using the support/resistance (SAR) lines created by the large box points to identify areas of possible trade initiation. By adding an order flow schedule and volume indications, you can determine the probability that price will continue through this near-term resistance or if this is a likely reversal point. I should also point out that I tend to place more value on Darvas box breakdowns than breakouts; although I am not completely ignorant of breakouts, I have simply found that breakouts are the most reliable trade than breakouts.
The box signals are given in real time, there is no delay as they are printed directly on the main chart and are very easy to spot. No adjustments are needed to make the cashier system more or less effective. In fact, all of the boxes shown are possible dynamic SAR entry and exit points. Yes, I said exit points. I often use the bottom lines of the chart to calculate my stops. These are just a few of the uses of the Darvas box system, and through further reading you can find a host of useful uses for this overlooked ugly duckling. But don’t be fooled, this little baby can put money in her pocket once she learns how to use it. As always, best of luck on her trades.
