Nicolas Darvas created what he coined the “Darvas Method.” Darvas disagreed with old the Wall Street adage “buy low, sell high.” These words of wisdom are based on buying stocks because of their valuation. A stock with a low price and a high valuation is, theoretically, supposed to rise to what it is valued at. However Darvas believed that in order to make a profit, a trader had to “buy high, sell higher.” This concept went strongly against most traders’ view of choosing stocks, which is often done by judging stocks on their value. Unfortunately the valuation method is very difficult and complex, and is often incorrect.
A trader using the valuation method is essentially to pick a stock that looks more valuable than it actually is. Traders who use this method are often highly educated individuals who have lots of time in which to analyze stocks and their indicators. Darvas’ method, on the other hand, requires minimal knowledge and a minimal time commitment.
The objective of the Darvas box method is to buy high and sell higher. This does not mean it is a strategy of buying new highs. Simply buying new highs is sure way to lose an investment. The Darvas method first confirms that each new high is part of a bullish trend, and not simply part of an unsupported, short lived rally. The volatility range that is createdby each box helps to indicate the stock’s strength or weakness.
When a stock is strong, it will break out of the top of the box. When the stock is weak, it will fall out of the bottom.
One of the more common criticisms of Darvas’ box method is that he designed it for the market that existed in the 1950s. But today’s market still operates on the same principles as it did in the past. Traders still buy and sell with the same herd mentality no matter what year it is. The biggest difference between the markets of today and the markets of Darvas’ time is the technology that drives trading.
During Darvas’ time, all trading was done with paper orders or on the telephone. Stockbrokers were the only ones who could trade stock on the market. Today trading is done almost entirely electronically, and anyone with an Internet connection can place an order with an online broker. That same order can be executed almost instantly. Now thousands more trades can take place in day than could happen in Darvas’ time. With more trades taking place, the market has become more volatile. In addition, technology has made the stock market open to more people, resulting in even more trades than in Darvas’ time.
To work in internet marketing it is a great idea to build a virtual team and outsource it. When you outsource it, you need a web guy, you need someone who helps with your off site promotion stuff as well. You need a few key players who’ve been skilled up in particular tactics. You obviously need a video guy, someone doing some sort of article or writing related stuff and then after you’ve mapped out that strategy, you just talk to your team and say things that need to be done.
Things that you need to be involved in are things where it’s really at the top end working with the client generating the content. Then it is going to be distributed out through the different media, be it taking the videos that you do and getting transcripts done and posting them out as videos or posting the videos themselves. When you are required to make over a site, you need to be involved personally. That sort of stuff is hard to outsource.
With that you identify what your objectives are when you outsource it. You grab what those low hanging fruit, easiest hidden resources are and go for those methods.
I’ll stress importance again, it comes back to the objective. We get so caught up in the process. Which software do we want to use? It’s not even serving your objective, it’s creating more work and you’re spinning your wheels.
To shift gears, consider how you go about implementing some of this online and off line publicity to drive traffic to the sites. One of the mistakes people make, new people make is that they don’t use leverage. There are still some other very internet marketing 101 things going on, like there is no offer, no call to action on the site mainly around an opt in box, whether you use a squeeze page or an opt in box. The biggest mistake is it’s below the fold.
The other biggest fault I continue to see is in the copy and that is that the information is more about the company than about the benefits that the visitor will get from buying the service or the product that you recommending or talking about or selling.
Other than that, the big one in the new media is not having text to go with non text media. So search engines cannot find you if you’re using a lot of audio and a lot of video. I’ve seen a lot of video blogs with a lot of great information but there’s no good headline or summary of that information, it’s just, hey, check out my latest video post. People aren’t sitting down searching, ‘hey, video post.’
The prime thing I still see are the keywords people choose are still the solution and not the pain. So if you’ve created this new invention and you expect people to be searching for it, that won’t work. The most basic example is, people type in headache or migraine, they don’t type in paracetamol. I continue to see that on keyword selection.
It’s important to note that keyword selection is one of the most important things and one of the first places, at least when you get to the point of building your website that you need to focus on. It’s important to figure out the point at which your clients, the cycle they have, the point at which they are in the buying part of that cycle. You need to discover how to get in front of them and then find those keywords.
To research long tail keywords is important. Let’s say they’re going after a particular camera or something like that and you go for the specific model number because that is a buying person. Similarly, if someone has a problem with a headache, we need to know what is it that they’re typing into the search engine at the time of them having a headache.
The ability to confidently act and react to various market conditions, trading with a developed system that not only gets positive results but reaches your long term goals, is a giant first step in a trading career. Throughout my own trading career I have found a few vital techniques and principals that make me the successful trader I am today. My hope is that after understanding their purpose you too will find them valuable.
Do you believe that the more you trade the more money you will make? On the surface this rings true, however experienced traders will reveal that the best strategy when looking to make serious money is to understand one market inside and out.
All traders, at one point or another, find themselves paralyzed and unable to make trades due to over signalitis. Too many indicators are a sure way to bring fear in even the most aggressive of traders. A few afternoons of missing hot opportunities and most are ready to dial the optimization down a notch or two. A simple, streamlined trading system is always a sure thing. You need to act fast if need be and trade in numerous market conditions. It takes time to adjust to newly implemented indicators, but if after time they continue to impede your trading, it may be time to simplify.
Do you have your trading systems documented and penned? If not, then you will only get so far as a trader. Every single long-term successful trader that I have ever met documents their winning trade systems. Take the time to write the entire methodology that led to your success. Why do you need to bother? In order to trade you must have a perception about the market. Commit to that perception by writing down your thoughts and strategies. By taking that perception and claiming it as yours you risk the opposite outcome of being incorrect. There will be no bones about it since it is written in black and white, and that is the point. Hold yourself accountable, and a revived sense of dedication will arise to better your trading system in similar future market conditions.
One of the most over-looked, yet valuable market strategies is back testing. It may feel like research drudgery, but this is precisely why every trader needs it. Make time to test the trading systems against historical data with similar conditions. Obviously, this is not a crystal ball as exact conditions are impossible to repeat, but there will be striking similarities. After all, as you gain experience trading you form current market perceptions based on past market conditions and systems. Back testing is the same thing, only you didnt lose any of the trades, hopefully.
Lets face it, trading confidence is invaluable. But how is one to gain this confidence when trading experience is slim? Back testing. Various trading systems help to read the market, but they only add confidence once acted upon. Whether you employ the candle sticks, moving averages, Fibonacci retracements, volatility breakouts or other trading systems is up to you. However, gaining trading confidence is also your job, and with back testing this confidence grows by leaps and bounds compared to those who choose to skip the method.
To quote one of the most world-renowned, professional trading consultants and coaches; Perhaps the greatest secret to top trading and investing success is appropriate money management, but sadly this describes very few traders or investors. It is a fact that proper money management is ragged among traders and investors. To achieve real success, superb money management must be enforced.
Can I tell you a secret? I call it a secret since there is so little correct information available about this subject. And this includes authors who have written books about the matter! Some circles call it diversification, other risk control. It is commonly known as wisely investing your money. Whatever you call money management, know that its power is not in its name, but in its simple algorithm.
Bear with me as I paint a picture for you. Trading and conventional businesses have important similarities worth explaining. To have a successful business statistics must be kept on almost everything. This includes everything from potential customers, sales or conversions down to the average dollar per sale. Before any changes are made to the business they must first know the base line. This perfectly describes trading.
Trading is a business. It may not appear as a traditional brick and mortar, but in order to improve you must keep statistics about your trading system. R multiples, win to loss rations, expectancy and other statistics area must to track. You can guess all day long where to tweak, but until you implement consistent statistic taking your trading will not improve. One solid place to learn about trading statistics is to read Trade your Way to Financial Freedom by Dr. Van Tharp.
At last, you have a back tested, hearty and the best trading systems ready to go. Money management is no longer a worry, as you understand how to properly handle it. You understand the market and are confident in your techniques. You have successfully maximized your trading potential, congratulations! You are about to enjoy hard-earned success that will leave others wondering how you did it.
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David Jenyns and Stuart McPhee, well known, experienced traders, discuss the merits of keeping part of one’s trading float back from active trading.
David: We have a question: do you recommend having all your trading capital in active trades or should some be kept as cash, and if so what percent?
Stuart: Good question, but it all depends. For example, my super fund I always have roughly ten percent in cash because, and this is probably more specific to Australian taxation law, during the year you have an obligation to pay tax, pay as you go. So I’ve always got that account with about ten percent of my capital – it’s cash, it’s secure, nothing will happen to it. It allows me to fulfill those tax obligations throughout the year as I have to pay as you go. But having said that, if that isn’t a requirement for you and trading opportunities present themselves, there’s no reason to keep some cash set aside. Using nearly everything in active trading is a great idea.
David: I’m in a like frame of mind about that. If you’re looking to trade the markets and you’ve set aside your trading float that’s your intended purpose for the money assuming you have appropriate trading candidates. My gut feeling would be you should have, whenever possible, all your money invested. Obviously, it comes back to your system, making sure you are getting the signals. You don’t want to put your money in just for the sake of having all your money in.
But I don’t see any reason to limit, oh, I’ll keep ten percent of the trading float just sitting in the account, just accruing interest, not involved in active trading. It’s part of how you structure your wealth creation; you’ll have a certain amount allocated for your trading float, you’ll have a certain amount allocated for your real estate, you’ll have a certain amount for cash in the bank. I see that separate from my trading float. Also with regard to backtesting you can see the utilization of your trading float. You can enter your trading float in before. You can see over a set period of time whether you’re fully utilizing or partially utilizing your cash and I always try to get as close to the top of that band as possible. So I’m as close to being maxed out as possible without being maxed out all the time.
If you are maxed out all the time and new trading opportunities pop up and you don’t have any capital available, it’s going to throw out your backtesting a little bit because with trading opportunities you may not have been able to open.
Depending on which trade you ended up taking could really affect the ultimate end of your testing as to whether you made a profit or not because of whether or not you took a particular trade. So that’s why if you are going to trade a particular type of system where you are constantly maxed out, where you look at Monte Carlo testing, where you look at what is the standard deviation of my trading system. How far is it between my backtesting results? What is the least profitable scenario and the most profitable scenario and you find that gap widens the more you fully utilize your cash.
You do not want to be maxed out as possible when you are doing backtesting. But definitely the major part of your float should be used for active trading.
This is an interview with a famous trader to ask the hard questions regarding the necessary characteristics of a successful stock market trader, and also, how to maximize one’s time when trading.
David: A question that has been sent in: I’m new to this game and I’m slowly but surely learning. How does one become a trader? What are the habits that are common to your family? Where must I begin so to speak in order to make the first confident step, to feel as a trader must, in knowing where to look. What I’m trying to find is an underlying process that will ensure the job’s done successfully.
If you are a blacksmith, in order to make a tool I need to understand the whole process in my mind before I begin. This is so I can know exactly what tool is to be used in order to develop design and the process to do this, in order to feel confident of the success, allowing that our best made plans can still fail due to unforeseen uncalculated constraints. How do I learn or find my basic processes associated to your profession?
Stuart: What I got out of this is what behaviors do we associate with a stock market trader? When I think of traders, I think of people who are structured, disciplined, they’re planners, they’re organized, they’re efficient. A couple of important ones there are being organized and being structured. They have a methodology they follow; they have a routine that they follow, obviously complementing their plan.
David: He also asks wanting to know what tools to use in order to develop and design and the process, when he was using the analogy of the blacksmith. There are the three m’s the mindset, money management and method, making sure you have those in place. It is also taking it in the right steps. A quick overview: make sure you define your objectives. This will dictate what markets you will be trading and the methodology you will be using. Also what returns, and is it realistic.
Then you’ll look at some entries and exits and money management for that particular market and make sure you document those appropriately. Then you do some backtesting to build up the confidence or even some paper trading if you’re not comfortable doing backtesting. Depending on what components you’ve got in your trading, some are easier to backtest than others and then you look at starting to trade your system. If you have backtested, keep monitoring your system, keep an eye on the stats as you go, to see that you are on track and you will be on your way to becoming a successful stock market trader.
The next question is: my biggest issue is with time. With a full-time job, kids and working life limits my time. What sort of system can be used that would maximize my time? Many trading systems treat you as if all you have is all day trade, but a lot of people would rather have a system that uses less than an hour per day. How can this be done?
Stuart: Trading stocks medium term is probably the simple answer to that. I think the situation that person has raised a lot of people could relate to. That’s how I started. Our ultimate goal is to give up work and trade full-time but we need to go through that apprenticeship to get to that point. While we do that we need the support and security of a full-time job until we can become a fully fledged stock market trader.
