How I Made Money Using the Nicolas Darvas System, Which Made Him $2,000,000 in the Stock Market

By Steve Burns

Quick Summary

A practical guide that translates Nicolas Darvas's legendary box trading system into modern terminology and application. Steve Burns explains how he used Darvas's principles of buying stocks at new highs within defined price "boxes," setting strict stop losses, and following trend to preserve capital through the 2008 crash and grow his accounts to $250,000.

Executive Summary

Steve Burns wrote this concise book to bridge the gap between Nicolas Darvas's classic mid-twentieth century investment approach and the vocabulary and tools available to modern traders. Darvas, a professional dancer, famously turned $36,000 into $2,000,000 in the stock market during the late 1950s by buying stocks making new highs on increasing volume, placing strict stop-loss orders, and trailing those stops to lock in profits. Burns explains how he applied these same principles to preserve his capital through the 2007-2009 financial crisis and grow his trading accounts substantially.

Core Thesis

The Darvas Box method remains a valid and profitable trading system when applied with discipline. The core principles are deceptively simple: buy stocks breaking out of defined price ranges (boxes) on high volume, set stop losses just below the box, trail stops as new boxes form, and never override the system with emotional decision-making. Burns argues that the method is essentially an early form of trend following and relative strength investing.

Key Concepts and Frameworks

1. The Darvas Box -- A price range defined by a stock's recent trading high and low, where the stock consolidates before a potential breakout. Three days of resistance at a new high or three days of support at a new low define the box boundaries.
2. Breakout Buying -- Purchase occurs when the stock price breaks above the top of the current box on above-average volume.
3. Stop-Loss Discipline -- Stops are placed just below the bottom of the current box. If stopped out, the loss is small and controlled. Darvas was stopped out many times before catching the major winners.
4. Trailing Stops -- As new boxes form at higher levels, the stop is moved up to just below the bottom of the new box, locking in profits.
5. Relative Strength -- Only trade stocks exhibiting the best relative strength in the market, those that lead during uptrends.
6. Emotional Removal -- Darvas placed his orders when the market was closed to avoid the adrenaline and emotion of live trading. Burns emphasizes that system-following eliminates ego from trading.
7. 200-Day Moving Average -- Burns recommends that even passive investors use the 200-day moving average to time entry and exit from broad market indices.

Practical Applications for Traders

1. Buy at new highs on increasing volume -- counterintuitive but effective during bull markets.
2. Never override stop losses -- the insurance policy against catastrophic loss.
3. Trail stops mechanically -- lock in profits as the stock advances box by box.
4. Stay in cash during bear markets -- the Darvas system naturally moves to cash when breakouts fail repeatedly.
5. Maximum 10% stop loss on any position -- a risk management ceiling regardless of box range.

Critical Assessment

Strengths

• Translates a proven historical system into accessible, modern language
• Practical and concise, with clear rules that any trader can follow
• Burns provides his own trade examples to demonstrate real-world application
• The emphasis on mechanical stop-loss discipline is universally valuable

Limitations

• The book is very short and lacks the depth of more comprehensive trading texts
• Limited discussion of the method's performance during bear markets or sideways markets
• No quantitative backtesting data to support the system's claimed effectiveness
• Largely repeats principles available in Darvas's own three books

Conclusion

Burns provides a serviceable modern translation of the Darvas Box method. The book's greatest value lies in its emphasis on systematic trading, stop-loss discipline, and the psychological importance of removing emotion from trading decisions. While brief and somewhat repetitive, it serves as an effective introduction to trend-following breakout strategies for beginning traders.