The Box Theory: Market Tactics


Aug 18, 2006
"This experience did more than anything to convince me that the purely technical approach to the market was sound. It meant that if I studied price action and volume, discarding all other factors, I could get positive results."

From How I Made $2,000,000 in the Stock Market

What is the box theory?

Nicolas Darvas said it best, "I started to realize that stock movements were not completely haphazard. Stocks did not fly like ballons in any direction. As if attracted by a magnet, they had a defined upward or downward trend which, once established, tended to continue. Within this trend stocks moved in a series of frames, or what I began to call "boxes."

In the modern day trading world we call these "boxes" brackets or support and resistance. Price moves from one zone to another. Once prices break this zone, they will enter a new zone. When these zones pile on top of each other we have an official established trend.

This concept is similar to a higher or lower value placement in market profile. As long as there is a continuation of a higher value, a trend is in place.

When studying price action alone, this is an important concept to understand. Price action is king. Learn this method and apply it to your trading methodology and you will never become extinct.

I have studied the Box Theory to apply it to my trading as well as tape reading. For a new trader, the concept of the simply law of supply and demand is hard to grasp. The market is an auction place. There is price acceptance in a new zone or rejection. Acceptance offers opportunities to fade the lower pivot level. Rejection offers opportunities to play the false breakouts.

In tape reading, the box theory can be applied by understanding short term support and resistance points. Just like a stock will use resistance as support once broken, the tape acts in a similar fashion. Understand that the more time price spends at one particular level, the more transfer of hands and a possible reversal. Most traders focus on just price and indicators. Learn to apply time into your trading and this will give you a new perspective.