FuTech : Darvas Box (Original Theory) Indicator

FuTech : Darvas Box (Original Theory) Indicator

📈 Introduction
🔹 This indicator implements the legendary Darvas Box theory developed by Nicolas Darvas in the 1950s, which helped him turn $25,000 into $2,000,000 in just 18 months.
🔹 Unlike other box indicators, this implementation strictly follows Darvas' original methodology while adding modern technical features for enhanced usability in today's markets.

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📊 What Makes This Implementation Unique
🔹 This indicator stands apart from other Darvas Box implementations in several key ways:
🔹 It implements the exact "high before low" rule that Darvas used - first identifying the roof (top) of the box, then waiting for the floor (bottom) to form
🔹 It offers two distinct methods for box detection - Swing Confirmation (which waits for price confirmation) and Lookback Period (simpler approach)
🔹 It includes Darvas' critical volume confirmation requirement with customizable parameters
🔹 It incorporates Darvas' focus on strong stocks near their highs through the 52-week high filter
🔹 It provides multi-timeframe capability, allowing application to intraday, daily, weekly, or monthly charts
🔹 It features dynamic box coloring based on breakout direction (green for upward, red for downward)

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🔍 Technical Implementation Details

📦 Box Formation Algorithm
🔹 The indicator constructs boxes using a sophisticated algorithm that follows Darvas' original approach:

🔹 For Swing Confirmation mode:
🔸 The system identifies potential swing highs by looking for price points that are higher than the previous N bars (user-defined)
🔸 Similarly, swing lows are identified as points lower than the previous N bars
🔸 The "high before low" rule ensures a roof is established before a floor is determined
🔸 Once both parameters are locked in, the box is drawn and extended horizontally

🔹 For Lookback Period mode:
🔸 The box high is simply the highest high of the last X bars (user-defined)
🔸 The box low is the lowest low of the last X bars
🔸 This provides a simpler but still effective implementation of Darvas' concept

🚀 Breakout Detection System
🔹 The indicator employs a dual-confirmation system for breakouts:

🔹 Upward Breakout Conditions:
🔸 Price must close above the box roof
🔸 Volume must exceed the volume moving average (default 20-period) multiplied by a factor (default 1.5x)
🔸 The 52-week high filter must be satisfied (price must be within the maximum drawdown percentage from the 52-week high)

🔹 Downward Breakout Conditions:
🔸 Price must close below the box floor
🔸 No volume confirmation is required for downward breakouts (following Darvas' approach)

📊 Volume Confirmation Mechanism
🔹 The indicator calculates volume thresholds using:
🔸 Volume Average = SMA(volume, N) where N is the user-defined period (default 20)
🔸 Volume Threshold = Volume Average × Volume Factor (default 1.5)
🔸 Only when current volume exceeds this threshold is an upward breakout considered valid

📈 Uptrend Filter
🔹 The indicator implements Darvas' focus on strong stocks through:
🔸 52-week High Calculation = Highest price over the past 52 weeks
🔸 Minimum Price Requirement = 52-week High × (1 - Maximum Drawdown %)
🔸 This ensures only stocks that are not too far from their highs generate signals

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🎯 How to Use This Indicator

🔷 Entry Signals
🔹 Wait for a green box to appear, indicating an upward breakout
🔹 Confirm that volume was above average during the breakout (shown by the indicator)
🔹 Verify the stock is within your acceptable distance from its 52-week high
🔹 Consider entering on the next candle after confirmation

🔷 Exit Signals
🔹 Exit when a red box appears, indicating a downward breakout
🔹 Alternatively, use trailing stops below newly formed box lows
🔹 Consider partial exits at predefined profit targets while letting the remainder run

🔷 Parameter Optimization
🔹 For swing traders, use longer lookback periods (20-50 bars)
🔹 For day traders, use shorter periods (5-15 bars)
🔹 Adjust the volume factor based on the asset's typical volatility
🔹 Modify the maximum drawdown percentage based on your risk tolerance

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📚 Historical Context and Trading Philosophy
🔹 Nicolas Darvas developed his box theory while traveling the world as a dancer.
🔹 With limited access to market information, he relied only on price charts and telegrams.
🔹 He discovered that strong stocks tend to pause after hitting new highs, forming what he called "boxes" - sideways ranges where the stock "rests" before its next move.
🔹 By buying only when price broke above these ranges with unusually high volume, he was able to ride powerful uptrends while cutting losses quickly when the breakdown occurred.
🔹 This indicator captures the essence of Darvas' approach - focusing on strength, confirming with volume, and selling weakness quickly - while adding modern technical features to enhance its utility in today's electronic trading environment.

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⚙️ Calculation Summary
🔹 The indicator performs the following calculations:
🔸 Box High = Highest swing high or lookback high (depending on selected method)
🔸 Box Low = Lowest swing low or lookback low (depending on selected method)
🔸 Upward Breakout = Price > Box High AND Volume > (Volume Average × Volume Factor)
🔸 Downward Breakout = Price < Box Low
🔸 Volume Average = SMA(Volume, N) where N is the volume period
🔸 Uptrend Filter = Price ≥ (52-week High × (1 - Maximum Drawdown %))

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🔔 Alert Configuration
🔹 To set up alerts:
🔸 Right-click on the chart and select "Add Alert"
🔸 Choose the Darvas Box indicator as the alert condition
🔸 Select either "Breakout Up" or "Breakout Down" as the alert condition
🔸 Configure your preferred notification method
🔹 This modernizes Darvas' telegram-based approach, allowing you to receive instant notifications when potential trading opportunities occur.

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📈 Conclusion
🔹 This FuTech : Darvas Box (Original Theory) indicator faithfully implements Nicolas Darvas' legendary trading method while adding modern technical features.
🔹 By focusing on strength, confirming with volume, and providing clear entry and exit signals, it offers traders a structured approach to trend following that has stood the test of time.
🔹 The indicator's multiple detection methods, volume confirmation, and trend filtering make it a comprehensive tool for implementing Darvas' box theory in today's markets.

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🙏 Credits : Inspired by LevelUpTools