The box formation
The Darvas Box strategy is a stock that is at all time highs or is simply trending higher and has started to consolidate by moving sideways for a period of weeks or months. By allowing the stock to rest sideways, it builds up energy to move higher. We wait for the box formation to break resistance highs for entry with a small stop-loss level near our entry. This will allow us to have a good risk to reward trade. The ideal box should be well-formed and not wide and loose.
Below is an example of a box breakout play. This chart formed a nice box over a period of months. Our entry would be a break of the upper box with a stop-loss right below the most recent pivot. Below you can see the entry and stop levels used.
The Box Breakout Retest
The box breakout retest is exactly as it sounds. If for whatever reason we miss the breakout entry, then we could have a second chance entry when the stock pulls back and tests the previous resistance which turns into support.
Below $FL broke out of a weekly box and retested the breakout near the top of the box which becomes support. We look for a hold of the retest and look for a proper entry spot. The stop would go below the retest lows.
Below is another box formation that occurred on the same chart as above after breaking out from the first box. Weekly charts are excellent for capturing bigger moves as you raise stops along the way. I will be providing both weekly and daily setups to get you the best of both worlds on the premium service.
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