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How I Made $2,000,000 in the Stock Market Paperback – September 8, 2011
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"Enlightenment Now: The Case for Reason, Science, Humanism, and Progress"
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He first talks about just fundamentals and his go at that, but he says that even a stock that looks great from that standpoint can fall immediately and irreparably, as many of us have no doubt found to be the case. He then talks about technical analysis, combining price momentum and irregular volume, similar to those such as Mark Minervini and William O'Neil. Also similar to them is the fact that he clings to stop-losses to force him to sell; unlike them, he often keeps these stop-losses tighter than 8%, but then at other times can give over 10%, depending on the stock. Like them, he also tries to identify buy-points, but it sounds less like he believes it's an iron-clad "this is the exact buy-point" system. Instead he talks about boxes, which sound like small troughs or even bases within a tight range of between 5 and 15%. Also, similar to at least Minervini, every successful stock owned by Darvas had already increased at least 100% within the prior year (although he does not point this out--I noticed it--and it was never claimed to be part of his system, whereas Minervini himself points it out).
Lastly, as one reviewer pointed out, Darvas benefited from an option program that either does not occur anymore or certainly does not occur commonly, especially for someone not looking for it, and further, he embraced the margin. As I recall, margin has been embraced by O'Neil and Minervini, but many novice or cautious investors will not want to do that, even with capital-saving stop-losses. That is where the similarities end, though. O'Neil and Minervini go into much greater detail on earnings, earnings surprises, market direction, and numerous other things. Darvas seems to admit his focus on just a few small factors--namely, price momentum and rising volume. Beyond that, his tip is to not pay too much attention to your stocks or you'll freak out and do too much.
One thing that I do have to credit this book for, which Minervini did well but O'Neil has not in any book of his that I have read, is to give the confidence to use stop-losses right. The point here is that Darvas admitted that even when you do everything right, you may be stopped out of a stock even the same day as buying it, and then you may still want to buy it after that. With some, the mentality seems to be, "well, you're getting stopped out and you aren't very good, but you're at least limiting how bad you are, so that's something." Here, the mentality is more, "these things don't always work and your charge is to follow your system. If it rises, raise your stop in time. If it falls, then you're just following the rules. Good."
His approach, learned through trial and error - lots of error - was to look for a stock that was in a consolidation after a move up and then look for that stock to break out. He used price and volume to ascertain the breakout and patiently waited for confirmation by using what he termed, The Box Theory.
This approach is not something revolutionary as it is suggested in most credible trading books. What makes this book special is how it is laid out in the easy to read story format.
The book is more of a story rather than dry, jargon filled information. Obviously, Darvas was a very smart man and he was educated in finance and economics but as he humbly points out, he started like most traders - doing all the wrong things - and his results were like most traders, he lost his shirt.
The sole advantage Darvas had over most present day traders is that he started with a substantial sum. His first stock was 6000 shares of a 50 cent Canadian stock. He got into owning this stock almost by accident but it turned out to be a very profitable trade and that got his curiosity going,
From there he tried different thing until he formulated his theories and system.
I enjoyed the book and already benefitted from the information presented therein. I would recommend this book to anyone whether they are a novice or an experienced trader. It more likely reinforces methods the reader is aware of instead of introducing a new system, but if the reader is smart enough to work with the same system until he becomes proficient, rewards will follow.
Now that it has been a few days since I finished the book, I find myself reflecting back on the concepts and realizing what a great message this book offers. If I could give it 10 stars I would. A really terrific book.