Darvas and shorting

[vetten]

Darvas explains his box strategy in a couple of books.

His strategy works mainly in a bull market and he tries to find stocks, which shoot for the moon.

the criteria he looks for in a stock before he would buy are:

1. price of the stock is an all-time high
2. markedly increase in volume
3. actively bouncing up and down in the top box
4. present price at least 2 times low for the year
5. stock in dynamic industry
6. expectation of increased earnings

I like his way of trading of the medium/longer-term trend.

Now I read somewhere that Darvas didn`t like shorting, but I dont know the reason.

In a bear market Darvas` way of trading becomes less relevant
and I wonder what he would look for if Darvas had to short.

Would he short when the stock goes down through the bottom of the top box or would he wait longer for the trend to confirm?

Or would he wait until the price of the stock trades under the year`s low, but losing out on a lot of profit if he would wait that long?

What other conditions would have to be met before he would short a stock?

Your thoughts on this subject would be much appreciated.

have a primo day

 

[Kicking]

Darvas did not short because he was not an idiot , I 've got news for you the big money is made going long, a lot of money and time is lost trying to make money in stocks on the shortside.

 

[newtoet]

Quote from Kicking:

Darvas did not short because he was not an idiot , I 've got news for you the big money is made going long, a lot of money and time is lost trying to make money in stocks on the shortside.

This statement is ridiculous, and false.

Just because you have had problems on the short side does not mean you can speak for everbody in such broad generalities.

 

[Kicking]

outside some rather extraordinary circumstances such as bubble bursts you are much more likely to lose, it's just not where the big money is, most of the time there are just better things to do, proof in case people like Darvas, O'Neill, or Zanger made their money on the long side, and Toni Oz made a killing just on the long side during the 2000 tech crash

 

[snooptrader]

I agree with newtoet. With all due respect to kicking, o'neill, and zanger eek: ) most who are consistently profitable go short or long depending on market conditions.

Personally, I am short more than long. For the past three years (not including 2005), my ratio was close to 60/40.

To say that the big money is made "only" on the long side is an ignorant statement.

 

[JackR]

I think you have to define your terms carefully.

Big Money?

Big percentage?

I'd rather buy a $10 stock and sell it at $50 then sell at $50 and cover at $10.

Make 40 points in both cases but the long side is a much better return on capital (a higher percent return).

Certainly good (big?) money in both cases.

 

[flytiger]

I've read all three of Darvas' books, although a long time ago. I have original copies, by the way.

His long strategy is well known. Boxes, breakout - a neandrathalish Wm O'Neil. I don't recall short strategy.

What I do know is, he was religious about stops. His book was so popular, the AMEX banned stops.I believe the volume maybe was a couple mill a day. His book was a runaway best seller. He moved to NYC, and when he was too close to his broker, he crashed. He did his best with a weekly Barron's that arrived, when he was in China I believe, two days later than usual.

What lessons do you take???? Stops, big money made by waiting, stay out of bear markets.

His last book, 1973, he's at Louis the whatever hotel in Paris. He's asking people what they own and why. It was the old, "by emotional, and defend the decision rationally" thing. I own Mcdonalds, down 70% here, because I like the hamburgers.

 

[telozo]

Quote from JackR:

I think you have to define your terms carefully.

Big Money?

Big percentage?

I'd rather buy a $10 stock and sell it at $50 then sell at $50 and cover at $10.

Make 40 points in both cases but the long side is a much better return on capital (a higher percent return).

Certainly good (big?) money in both cases.

I don't seem to understand how the same original amount of shares, at the same price, and the same profit per share can produce a different percentage return. Care to elaborate?

 

[telozo]

Oh, I got it! Your original amount invested is lower on the long side. Duh!

 

[Kicking]

if you are bent on shorting stocks YOU are the ignorant, (but I probably have to thank you for that )do you know anyone who became filthy rich shorting ? Livermore you say ? he got wiped out a few times just on one or two shorts . Zanger and O'Neill do go short but that's not how they made the bulk of their gains, otherwise Zanger would have made a killing in the bear, he didn't, he lost a ton.