Just one indicator towards your ideal setup: Darvas Box!
Most novice traders get confused or even scared after looking at the number of indicators or parameters, which a professional trader uses to pick trades. They face a hard time over the functionality of the indicators and their combinations with respect to other indicators. To make it simpler, we have brought to you just one indicator, which is sufficient for you to understand which trade is suitable for your money.
Darvas Box is one of the oldest and the widely-used technical indicators among chartists. The indicator has a unique approach towards understanding the nature of the trend. It uses trend analysis based entirely on dynamic support and resistance concepts. An important feature of this indicator is that it can be used standalone, i.e. it is not used in combination with any other indicator, which makes it appealing. It is designed as a method of capturing the strength of the trend.
The basic understanding is that whenever price breaks out of the upper level of the box, we see an uptrend whereas, when it breaks down the lower level of the box, it is said that Darvas Box has been broken down and a downtrend is expected. Let us apply it on a chart to understand the indicator better.
The above chart is a two-hour chart of Nifty, ranging from mid-August to mid-November 2021.
The first box in the month of August was broken at the upper level and a strong uptrend had followed. Similar is the case with the second Darvas Box. The index had given a false breakout during the third Darvas Box but was identifiable due to the generation of smaller candles. However, the fourth box, which occurred during October-end, had witnessed a breakdown with strong bearish candles that confirmed a change in the trend. At this point, Darvas Box indicates selling trades due to trend change.
Hope you liked today's chapter on Darvas Box. We, at DSIJ, bring such informative content in our educative mindshare with an aim to help the novice as well as experienced traders to get acquainted with useful tools and concepts!