Darvas gummy Boxes
motivated by e-mail from Richard C.

Okay, so there's these things called Darvas Boxes and ...

>And you never heard of them before, right?
Pay attention.
 It seems this ballroom dancer Nicolas Darvas, turned \$X into \$Y by identifying particular stocks (in some magic way), then buying and selling after they had traded in a narrow range ... expecting them to break ouf of a trading box either UP (so he'd Buy) or DOWN (so he'd Sell) and ... >Huh? \$X and \$Y? Depending upon who you read, \$10K < \$X < \$36K and \$2M < \$Y < \$2.5M. >Identifying stocks in what magic way? I have no idea. I'm only interested is seeing whether trading in a narrow range signals some major UP or DOWN movement.

To find them thar "narrow trading ranges" this is what I did:
 I look at the price on some day N (over the past year). I see if that price (at day N) is the Maximum over (N-10, N+20). If not, I move on to the next day and repeat 1 and 2 If it is the Maximum, then I draw the upper edge of a box, from day N to day N+20. Then I find the Minimum over (N, N+20) and draw the lower edge of the box. Then I continue the chart for another 10 days or so ... to see what happens after the "narrow range". Then I see whether it breaks out UP or DOWN and ...

>What's "narrow"?
Oh ... I forgot. I calculate the height of the box as a percentage of the Maximum: (Max - Min) / Max.
That's the Darvas Range and measures how "narrow" the box. For example: (16.10 - 15.19) / 16.10 = 0.06 or 6%.

>Why 20 days? Why not 30 or 47 or ...?
I reckon a month is good and that's about 20 market days.
Anyway, the spreadsheet identifies all boxes over the past year so you can see what happens next ... whether there's a breakout and whether it's UP or DOWN.
 >And how long you have to wait. And whether it's a good scheme in bear markets. >And whether Darvas knew what he was doing. And whether you should adopt Darvas Boxes as your trading strategy. >And whether you should split your winnings with me. When Time magazine told the Darvas story in May, 1959, the DOW was on a roll.
 >I assume he wrote a book. Don't they always? Darvas wrote one in 1986.       I was thinking of writing one myself ...

>If I wanted to see if prices break out of "narrow ranges", I'd want to see ALL the boxes for a bunch of stocks and ...
Hmmm ... good idea, so there's this spreadsheet:

You type in a gaggle of stocks then click the NextSTOCK button.

>So that's Darvas Boxes, eh?
Darvas? No, his system is more complex. What we're talking about is trading in a "narrow range" and prices inside a box.
That's what I find interesting so I just looked for these ...

>Then we've been talking about gummy boxes!
Uh ... yes, I guess so.
In gummy boxes, we've used the closing price each day. Darvas uses the actual daily Highs and Lows.
In gummy boxes, we've considered 20 market days ... about a month of market cativity.
Darvas looked at just a few days. His techniques may have been more like this:
 His Top is established if the High was the maximum over the period from 3 days earlier to 3 days later: [N-3, N+3]   That'd make Top a local maximum. Then he established a Bottom for the box. He looked for the Low over the next few days. Then he set a BUY order just above the Top (expecting that the price would continue UP). He also set a SELL order just below the Bottom (expecting that the price would continue DOWN). Top & Bottom of a Box

>Is there someting magical about 3 days?