The cTrader Darvas indicator draws a box around the ranging market which uses the new price highs and lows by connecting the upper line to the new highs and the lower line to the new lows. If the price touches the previous low or high and then bounces back inside the box then there is no signal to buy or sell, but if the price should break through the box then a break-out or price reversal may occur.
Darvas Boxes indicator can be used to identify momentum breakouts and price reversals.
The Darvas Box - Timeless Classic
This type of indicator is also suitable for day and swing traders as you can use all timeframes, if there was a strong uptrend then the indicator would show a consistent rising line and vice versa for a downtrend. The Darvas Box trading strategy involves buying new high or low prices and drawing a box around these prices so that the recent highs and lows establish an entry and exit point for a stop-loss order.
Trading Strategy Rules
The following 5-rules apply to entering a long position, the reverse applies to a short position, but critics of this system state that Darvas made his fortune mostly in a bullish market.
- The market is making new 52-week highs.
- When the price reaches the new high, make sure there are 3 consecutive days that the price does not exceed the 52-week high price.
- You will see that the new high becomes the top of the Darvas Box which will be your breakout price.
- Open a long position as the price breaks above the box once it exceeds a set number of pips.
- Add extra volume to your position as it moves into each new box.
To use the Darvas box strategy, a trader should look at a heavily traded symbol using a suitable volume indicator and then buy when they rise above the 52-week highs, alternatively, a sell trade should be placed if the price drops below the 52-week low.
You can enter a buy position when a bullish candle closes above the Darva box upper resistance line and you can set your stop-loss below the lower Darvas box line or you can place it a few pips below your entry candle. You can also exit the trade when the price hits the resistance line.
You can enter a sell position when a bearish candle closes below the Darva box lower resistance line and you can set your stop-loss above the upper Darvas box line or you can place it a few pips above your entry candle. You can also exit the trade when the price hits the support line.
Price Bounces or Reversals
You can also use this indicator for price reversals, as you can see from the above chart, twice the candlewick dropped below the Darvas box and twice the price retraced.
- Use on any timeframe for swing trading and day traders.
- Helps identify break-outs and price reversals.
- Simple to use.
- Great for strategies, including retouch and channel trading.
You can find out more about the Darvas Box Theory in the article we published.
How To Install
First, make sure you have the cTrader trading platform installed and then simply unzip the file and double-click on it to automatically install it onto the platform.
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