What’s the BIG Idea?

by Darrin Donnelly on May 16, 2011

As a trader, Nicolas Darvas is best known for two things:

1) The trend-following technical system he designed – his famous “Darvas Box” method.

2) His emphasis on only buying stocks with extremely high-growth fundamentals.

But people often overlook other VITAL components to the trading system he created.  For instance, Darvas wrote the following in his classic book, How I Made $2 Million in the Stock Market:

“I looked out for those stocks which were tied up with the future and where I could expect that revolutionary new products would sharply improve the company’s earnings.  …  What I had to do was to find stocks that would be hoisted up because they stirred people’s imaginations for the future.”

There’s a lot of wisdom in the above passage.

It’s easy to get so enamored with outstanding earnings figures and superb technical patterns that we often overlook one of the biggest drivers behind a winning stock: what I refer to as the company’s “Big Idea.” [click to continue…]

How to Avoid Trouble in a Choppy Market

by Darrin Donnelly on May 11, 2011

Click on chart to enlarge.
Click on chart to enlarge.

We’re seeing signs of an indecisive (choppy) market, which, historically, is not too uncommon for the month of May.

On Tuesday, the NASDAQ recorded an impressive Accumulation Day as it powered higher on increased volume.  On Wednesday, the market responded with a Distribution Day as it FELL on increased volume.

The key to successfully managing a choppy market environment (especially for trend followers) is keeping a short and focused list of stocks.  You can run into serious trouble when you start chasing too many stocks that happen to be breaking higher. [click to continue…]

The Most Profitable Trade You Can Make

by Darrin Donnelly on May 4, 2011

One of the most common ways traders go broke is through over-trading.

Over-trading is a very unfortunate occurrence because it’s caused by a very basic human desire to control results by taking MORE action.

Think about it, in just about every endeavor we participate in, taking MORE action results in more positive outcomes.  More exercise results in better health.  More studying results in increased knowledge.  More encounters with potential customers results in more paying customers for your business.  You get the idea.

But in the world of trading, taking more action does not result in a more positive outcome.

In fact, the opposite is true: making more trades actually increases the likelihood of failure. [click to continue…]

Crucial Changes to the Darvas System

by Darrin Donnelly on April 28, 2011

Ever since Nicolas Darvas created the Darvas Trading System back in the late 1950s, it has been forced to evolve to changing stock market conditions.

While the overall strategy of following trends in high-growth stocks has NEVER changed, certain methods and techniques have been added in order to adapt to the current market environment.

Nicolas Darvas himself made tweaks and revisions to the Darvas System up until the time of his death in 1977 – nearly 20 years after he created this powerful trading system.  Since his death, some of the top traders in the world have made their own modifications to the Darvas System. [click to continue…]

Stocks Blast through Resistance

by Darrin Donnelly on April 20, 2011

Click on chart to enlarge.

Click on chart to enlarge.

On Wednesday, the NASDAQ surged 2.1% higher on its heaviest volume in weeks.

While this action was extremely positive in itself, the real news was that the NASDAQ managed to close above 2800 for the first time since February 18th.

As you can see in the chart that accompanies this article, the 2800 level had been a clear line of resistance for the NASDAQ over the past eight weeks.  While the index tried to break through 2800 on several occasions, it never managed to CLOSE above it.  That is, until Wednesday’s powerful “Accumulation Day.”

This positive behavior officially shifts our market health report from “Neutral Trend” to “Uptrend.” [click to continue…]

An Important Lesson for Trading (and Life)

by Darrin Donnelly on April 12, 2011

In my years as a trader, I’ve found that almost all of the important lessons for successful trading also happen to be important lessons for successful living.

Traders must learn to control their emotions, release their egos, exercise discipline, let go of all biases, and see the big picture – just to name a few key lessons.

Another great trading lesson that should also be applied to your life is this: you can’t control what you can’t control.

Once you recognize the things you truly have no control over, it allows you to focus all your attention on what you CAN control. [click to continue…]