The Darvas box theory is based on the work of Nicolas Darvas, author of the book "How I Made $2 Million in the Stock Market". This indicator uses his box theory to help visualize upward trends and find potential opportunities to buy or add to a position.
Darvas was a growth stock trader. After extensive study of historical stock movements, Darvas noted stocks "have 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."
Darvas Box Theory ■ A box defines a high and low range that contains a stock's movement over a period of time. ■ Darvas preferred "lively" stocks that moved up and down within a box. In his research, Darvas noted stocks with these characteristics often had significant moves up. ■ Boxes stacked one after another often indicate a strong upward trend. ■ A potential buy signal is a stock moving past the high of the topmost box with a significant increase in volume. ■ Within the range of a box, Darvas considered movement to the bottom of the range a healthy sign. These moves down shakeout weak holders who sell thinking the downward trend may continue.
Defining a Box: ■ After price makes a new high, there must be three consecutive bars that don't exceed the high. ■ Once the top of the box is set, the same process is used, in reverse, to determine the bottom. ■ Once the high and low are established, a box is drawn over the range of bars. ■ With this indicator, there are two options to determine when a box is complete, that is, when a box is fully enclosed and a new box can be started. The default is when there is a close above or below the high or low of the box. Using the close may provide a better perspective of the overall trend by limiting noise of price movements within a bar. The second option to complete a box is when a bar's high or low goes above or below the boundaries of the box. The preferred option is configurable within the indicator Settings.
Lookback Range ■ The lookback range is used to determine if the current bar has reached a new high, which could indicate the start of a new box. ■ The value specified for the lookback determines how many bars back to compare against the current bar high. ■ You can set the lookback value for intraday, daily and weekly charts. ■ It's recommended to experiment with lookback values across various timeframes to find settings that fit with your trading style.
Suggestions from Darvas: ■ The box theory works best during a strong uptrend, where boxes stack one after another. ■ When breaking through the top of the box, ideally there will be a significant increase in volume. This may be an opportunity to buy or add to a position. ■ Try and hold stocks that are consistently moving up by raising a stop-loss along with the rise. ■ Take losses quickly.
Indicator Features: ■ Box completion can be based on a close above/below the box boundaries or a move above/below the box boundaries. ■ Configure the lookback range for intraday, daily and weekly charts. ■ Configure box borders and background colors. ■ When the last bar is within a box, show an optional breakout price indicating a move above the top of box.
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Version 2.0
What's New: ■ Option to show distance to breakout price (box highest high) as a percentage.
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Version 3.0
What's New: ■ Custom alerts on break above box high or below box low. ■ Option to show distance in price and percentage to box high and/or low.
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Version 4.0
What's New: ■ Allow price/percentage labels to be adjusted left/right in relation to the last bar.
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Version 5.0
■ Option to show the rightmost vertical bar, one bar to right to candle wicks are not obscured. ■ Borders can be turned off/on.
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Version 6.0
■ Minor updates to visual layout of boxes.
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Version 7.0
■ Added two options for determining box highs and lows. ■ Box border styles are now configurable. ■ Choose timeframes (intraday, daily, etc) to display boxes.
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Version 8.0
■ Updates to Settings and managing border colors and transparency.
Are there any options to get the source code or buy it?
JohnMuchow
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Thanks for your interest in the script. Although this project is not open source, I'm open to ideas and suggestions for future updates.
derlanlima
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@JohnMuchow, I would be interested in purchasing the source code if available
JohnMuchow
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Thanks for your interest, however, the code isn't available to purchase.
lertsak
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Thank you for Great Work ! John. I have questions and suggest as follows
1) How does look back work ?
1.1 ) the number in each option will be used once the current time is change to that ?
1.2 ) What does it mean for setting a "day as 3" for example. I play with it but I could not see how does it change so I am confusing on how does it work on optimizing time period.
2) Add on an option of how far that price go from High to Low as a A) percentage would be and B) time (bar / days) would be great !
Appreciated !
lertsak
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From my observation, the higher number of look back, the stronger uptrend of the new box created ?
Do I understand correctly ?
JohnMuchow
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I think it depends on your trading style and timeframe. For shorter term traders, more frequent boxes may help provide some insight into potential trading opportunities. I typically leave all my lookback values at 1 so I can see each new box start and then look for other potential signs of price and volume action.
pkopensrc
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Great code. I coded same but was getting boxes inside boxes.
Love to see the code to learn and implement.
Please open source it for developers