Nicolas Darvas’ 5 Rules of Stock Trading

by Darrin Donnelly on October 6, 2010

Nicolas Darvas, pictured above in 1959, had 5 simple rules for stock trading.

Nicolas Darvas, pictured above in 1959, had 5 simple rules for stock trading.

Billionaire investor Warren Buffett once famously quipped, “There seems to be some perverse human characteristic that likes to make easy things difficult.”

Nicolas Darvas made a similar statement when he wrote in 1977: “There is no human activity that I know of to which people have a more irrational approach than the stock market.  There seems to be something hypnotic about stocks that makes people behave in a manner which they would never do in any other field of activity.”

The point both of these stock market masters were trying to make is that investors have a tendency to overcomplicate concepts that are actually quite simple.  There’s a voice inside us that tells us the simpler something is, the less likely it is to actually produce exceptional results. 

But in fact, most times, the opposite is true. 

Simpler really is better.

With this in mind, I’d like to offer a simple overview of the Darvas Trading System boiled down to just five simple rules. 

These five rules were written by Nicolas Darvas himself in his final book, You Can Still Make It in the Stock Market, which was published in 1977.

Nicolas Darvas’ 5 Rules:

1-  Only buy companies “whose growth and earnings prospects look highly promising.”

2 –  Avoid companies that are “already so big that the prospect of any further substantial growth is highly unlikely.”

3-  “Check the overall market trend to ascertain whether stocks in general are in an uptrend.”

4-  “Check whether the stock belongs to a strong industry group, i.e., a group that is performing well in the market relative to other groups.”

5-  Consider the stock only “if it is rising in price on high volume.”

Only after passing these five requirements would Nicolas Darvas evaluate a stock in light of his trend-following technical strategy, “The Darvas Box Theory.”

The five simple rules listed above are the basis for the entire Darvas System. 

It’s not rocket science and it makes fundamental sense. 

Like most concepts that lead to success (in ANY area of life) it really is quite simple to understand.

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Want a list of all the current Darvas Stocks with buy points and sell points?  Check out the latest issue of Darvas Trader PRO.  You can try out this exclusive Darvas System newsletter risk-free for 30 days.

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