The Theory Starts To Work

Now, the techno- fundamentalist theory has started to work. In November 1957, Darvas noticed a stock- Lorillard. The stock fit his theory. Its volume for that week had increased sharply from an average of 10000 shares to 126700 shares. The constant rise in price and volume indicated the incredible interest in that stock. 

He bought the shares at the following rates –

Then he bought Diner’s club –

He got out of the Diner’s club because it fell below the stop loss. His theory worked and he received $35,848.85, making an overall profit of $10,328.05. He was able to book profit just based on cables and Barton’s. 

Next he noticed that the stock EL Bruce meets his theory. He chose to sell Lorillard and invest the money in EL Bruce. He sold all of the 1000 shares at an average price of 57⅜ making a profit of $21,052.95. 

He bought EL Bruce at the following prices-

He was suggested to sell these shares at a $100 unit price but he didn’t because according to his theory, the stock still showed indications of growth. He gradually sold his stocks in blocks of 100-200 shares at an average price of $171. He made a $295,305.45 profit on this stock.

Takeaway- Great stocks can be found by looking at their price strength even in a weak market. A big clue is higher highs and increasing volume. Companies that are transforming the world through new and innovative products will tend to have stocks that rocket higher if the earnings expectations are considerable enough.

Traders should not be afraid to be stopped out of a trade. On the other hand,  they must turn around and go back in when it starts acting right. 

It is stupid to hold onto wrong opinions stubbornly. It is smart to change opinions to fit the price action. 

Darvas was an expert at adding to winners on each leg up. This enables maximising returns and multiplying profits when a trader is in the right stock in an uptrend.

One secret of most of the best traders is to go into every trade, presuming it is a loser. This helps to mentally deal with the loss before it happens. It also helps to keep a neutral opinion. One cannot control what the market does, so they have to be prepared to take a loss every time one enters a trade.

To keep the big profits which are accumulated during the uptrend, stop loss must be trailing so that it can lock in profits and not be given back.  

A trader will be able to make large profits in the right situation if he does regular homework and doesn't give up. Homework might include reading books, building an initial trading account, attending seminars, using coaches, but not quitting during the learning process.