Cables Round The World

In this chapter, Darvas talked about the time of his life when he signed up for a 2-year tour all around the world. He was apprehensive about operating from other countries. Thus he and his broker chose to stay in touch via cables (a method of communication at that time) and used Barton’s financial journal to look for stocks.

He began giving instructions to his broker over cables. His cables from the broker had the closing price, the box which comprised the upper and lowest ranges throughout the day, and the general market trend. Whenever he suffered a loss he wrote the reason for it and decided to never repeat the mistake. After some time, he started getting sold out of all the stocks he owned because of the stop loss. He could not figure it out at first but later when it was declared a bear market. 

With the help of his theory He was able to come out of the stocks without incurring a huge loss and this gave him great confidence because  his theory worked. He was on his own without any news and still, he was able to get out of the market on time.

Takeaway- Nicolas Darvas was able to completely withdraw himself emotionally from the daily gyrations of the market by simply not watching it. His stop losses would take him out if there was a wild sell-off in his stock. By doing this he saved much of the emotional capital that everyday traders spend freely by watching each tick of the stock and living the wins and losses in real-time.

Not only did Darvas trade off only the end of day prices; he wanted to know the day’s complete  price range. He needed to know every price that people were buying and selling the stock at, throughout the day so he could create his boxes of support and resistance.

According to Darvas, the path to failure in trading lies in confusion, watching CNBC, listening to rumours on message boards and getting opinions about the positions from every possible person. The path to success lies in the focus on where capital is flowing, reading the charts, buying the best stocks in uptrends and holding them until stopped out.

One of the simplest principles of stock market success is trading a handful of the best stocks based only on price action.

Darvas also recommends a trading journal because each trade is an opportunity to learn about the market action, ego and emotions of greed and fear.

When a trader buys a stock, he must have an exit price. The exit must be planned and honoured. The first exit is always the best.

The Darvas system is a great trading method because it follows price action and does not predict the future. 

In the beginning, a trader might get lucky and make some money which will later be lost in one big trade or a string of losers. This is all part of the learning process. Traders should not get discouraged and quiet because to make money in the stock market one has to pay dues first and get a hands-on education.