Darvas trading is truly groundbreaking and a real inspiration to any would-be trader. In 1957, Nicolas Darvas (dancer arguably the most inspirational trader of all time) and his dance partner Julia signed a two-year contract to tour the world. This created some difficulties for Darvas. He normally used the telephone to communicate with his brokers. But the tour would take him to exotic locations such as Nepal and Kashmir, which had limited telephone service, and would cause a communication blackout with his brokers.
So instead of relying on the telephone networks of these countries, Darvas arranged to have a telegram sent to him daily. This telegram contained the closing price and trading range for the day of every stock that he owned or wished to watch. To ensure that his daily telegram reached him while he was on the move, the telegram was often sent to both his destination and his place of departure.
Being so far from the market had some very important affects on Darvas’ methods and actions. For the first time ever, Darvas was completely free from rumors, hearsay, and advice, and for the two years that he was on tour, there were hardly any telephone calls to or from brokers. While Darvas had been operating from the United States; he had faced a constant onslaught of information that would most likely lead him astray. Being in a different hemisphere gave him the opportunity to train himself to be detached emotionally from his trades.
“For the first time ever, Darvas was completely free from rumors, hearsay, and advice…”
There were also some disadvantages to being so far from the market. When all of his stocks inexplicably dropped, Darvas had no idea why. His telegrams gave no information about the general mood of the market. After receiving so little information about the market in general, Darvas arranged to have the Dow Jones Average sent to him in his daily telegram. The Dow Jones Average is an average of thirty blue chip stocks. These thirty blue chip stocks are the largest and most widely held companies on the market.
Darvas had made attempts in the past to emotionally detach himself from his purchases. But of all the methods he tried, physically distancing himself from the market was the one thing that worked. It’s an easy thing to train yourself to use a market strategy. Many high schools have students play stock market games where they pick stocks and watch how they perform. In these games, it’s easy to cut your losses and sell a stock that has lost you money. But when there is actual money involved, money that an investor has worked long and hard for, emotions come into play that very quickly crowd out your carefully studied strategy.
Emotionally, it can be difficult to sell a stock because there is an unspoken commitment to the stock. A trader buys a stock because he believes it is going to rise and make him money. The act of purchasing a stock is a technical and emotional endorsement. All the research and work put into picking a stock has value to people, and traders then hand over their money trusting that the stock they picked will rise. This leads many people to believe that they should stick with their purchase, even if that stock is falling fast. Instead, most traders will refuse to cut their losses, continuing to believe that the decision to buy the stock was sound and will wait with bated breath for their stock to turn around.
For Darvas, traveling the world produced a sense that he was detached from his trades. Like in stock market games, the only indication that Darvas was making or losing money was a piece of paper indicating the price of his stocks. Darvas rarely even got to check on his account totals because sending more than quotes by cable was so expensive.
Since Darvas was so far out of touch with the market, the only way for him to send orders was through cables. These orders were always automatic buy on price orders or stop-loss orders
While he was on the road, these types of orders became very important to him. Receiving updates on the market so infrequently made it impossible to enter and exit the market at the correct time. Only well thought out automatic buy and stop-loss orders placed in advance could meet the objective of correctly timing entrances and exist from the market. Later on Darvas saw the value in having these orders made automatically and integrated this idea into his box method.
Being far away from the market also gave Darvas the time, as well as the peace and quiet, that he needed to practice his method. With the experience he gained Darvas trading is probably the best method of trading the world has ever seen.