Let’s Revisit the Darvas Box and E-Mini Trading

The diminutive Darvas Box is a tool that I seldom see on retail traders charts. On the other hand, it is not unusual to spot the Darvas on multiple professional traders charts when entering an institutional trading room. This e-mini indicator is essentially an indicator, at first glance, of near term support and resistance. I like it because it provides an instant view of where you are likely to encounter your first contact with areas where traders have in the past chosen to reverse the market in the opposite direction. It also provides valuable information on potential breakdowns and breakouts.

Why don’t trading educators teach Darvas box theory?

From the onset, 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 brand new indicator that resembles the old indicator. In the current e-mini scalping environment software sales are what has driven profits as scads of new traders search for the new “magic” indicator that will propel them to glorious profit. With few exceptions, what is needed in most traders plan is to learn to trade with real-time indicators without the need for the constant reworking of old indicators and packaging them as something new, different, and difference-making. So, this trading tool has been largely ignored by the retail-class of traders in lieu of new systems that aren’t nearly as effective.

So, what the heck does this Darvas box thingy do that can help your trading?

I am not a dyed in the wool breakout or breakdown trader; I have found the most success in using the support/resistance (SAR) lines created by the box great points to pinpoint areas of potential trade initiation. By adding an order flow program and volume indications you can ascertain the likelihood of price to continue through this short term resistance or whether this is a likely reversal point. I should also note that I tend to put more stock in Darvas box breakdowns than breakouts; though I don’t completely ignore the breakouts, I have simply found the breakdowns to be the more reliable trade than the breakouts.

The box signals are given in real time, there is no lag as they are printed directly onto the main chart and are very easy to spot. There are no adjustments needed to make the box system more effective or less effective. In fact, all the boxes show are possible dynamic SAR entry and exit points. Yes, I said exit points. I often use the bottom lines of the box to calculate my stops. These are just a few uses of the Darvas box system and through further reading, you can find any number of useful uses for this overlooked ugly ducking. But don’t be fooled, this little baby can put money in your pocket once you get the hang of its use. As always, best of luck in your trading.