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When Is A Trading ‘System’ Worth Following?

The world is full of people claiming to have ‘systems’ that can beat the odds in betting, casinos, forex and stock markets. In pretty much every case the author turns out to be either very lucky with his personal ‘system’, exploiting short term loopholes publicized only after the loophole has been closed or an out and out charlatan.

We tend to seek out ‘systems’ because they act as a guarantee against failure and a replacement for knowledge and experience. A system enables us to follow the expertise of other people without our needing to have the same depth of knowledge. A system is like a franchise for knowledge.

For many people new to stock market investing then a system that can work is a holy grail and our task seems to be that of dissecting competing systems for their value rather than to learn the fundamentals of investing.

Leaving aside for now the relative worth of learning about systems as opposed to learning about stock trading I thought it worthwhile to consider a ‘system’ that might just have some benefit.

I had heard of a guy by the name of Nicholas Darvas. he is often portrayed by people with something to sell as a dancer who got lucky with his self developed system. As is often the case the truth is at the same time simpler and more complex. Nicholas Darvas trained as an economist in pre-WW2 Hungary. This suggests that he already knew something of the principals of investing and market strategy. Later he fled Hungary ahead of Nazi and Soviet invaders and made a name for himself as part of a dancing team with his sister.

During the late 1950’s he started to invest the profits from his dancing career into the stock market and had some considerable success. Later he wrote down his investing system with its famous ‘boxes’ and went on to write six books about stock market investing.

There is little doubt that Darvas’s system has merit in terms of picking stocks and managing their life in an investment portfolio. Darvas himself reckoned that he read some 200 books on investing before making his first picks – evidently his system was knowledge based. It must be said that his considerable success occurred during an extended bull market, which certainly made success easier for all market participants, and he stated that he would not buy during a bear market. In addition he never sold short, although he understood that his system could easily be adapted to short selling and others building upon his work have done just that.

There are several people who have used Darvas’ work as the basis for their own training products and these offerings may be worth consideration. They tend to offer commentary upon Darvas’s work making it more accessible to those without the training and knowledge that he had acquired over his lifetime. One such offer can be found at www.nicholasdarvastrading.com. This home training course comprises both written materials and video for those who are visual learners. Darvas was working before the use of personal computers revolutionised trading. The vendor has provided several scripts that can be used with leading charting packages to enable users to implement Darvas’s methods on their own computers.

Given that the vendor offers a six week refund guarantee it is probably worth taking a look to see if what Darvas has to share, as interpreted by the vendor Jimmy Cox, is appropriate for your new investment business.

 

 

 

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