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From Ballroom Dancer to Stock Market Millionaire

How a Professional Dancer Made Millions in the Stock Market

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Sometimes, in order to innovate, you need to have an outsider’s viewpoint.  The most famous example of this may be Steve Jobs, who looked at Apple and the products it made not as a programmer or electrical engineer would, but as a designer or consumer would.

It was that type of thinking -- that "different" thinking -- that allowed him to ignore traditionally held views of what could or could not be done in a computer company and led to the creation of perhaps the most innovative company in the history of consumer electronics.

In terms of the stock market, Nicolas Darvas could not be more of an outsider if he had lived on Mars, which may be the reason that in 1956 he was able to turn $10,000 into to $2 million in just 18 months (the equivalent of $17 million in today's dollars), using an early form of technical analysis.

Darvas was a professional ballroom dancer by trade, who in 1943, at the age of twenty-three, escaped from Hungary before the Nazis invaded.  Eventually landing in the United States, he and his sister Julia spent much of their time after the war performing and touring the globe.  

During these travels Darvas had plenty of down time and became fascinated with the stock market, often spending up to eight hours a day reading the classic books of investment strategy.  After reading over 200 books on the subject, Darvas decided to begin investing himself and started buying stocks that were making new 52-week highs.

After a few months, Darvas' system yielded few winners and his brokerage account had lost money. It was at the point that he refined his system and first came up with the idea of a Darvas box.

A Darvas box is created by drawing a line at the first level where a stock's price retraces after breaking into a new 52-week high, and then drawing another line at the first level where price holds on that retrace, ideally above the original 52-week high.  

As long as a stock's price stayed inside that box, Darvas would not sell.  If price broke above the top of the box he would add to his position, and if price broke below the bottom of a box, he would sell his position.  This took all the emotions out of the decision making process and it was this technique that made him a millionaire.

What is fascinating about his accomplishment is that it was done in a time before computers or the internet, all while Darvas was traveling the world.  His only source of market information was Barron's (or sometimes the Wall Street Journal) which was a week old by the time he read it and he could only buy and sell his stocks by sending telegrams to his broker in New York.

Ironically, the delay in information flow and execution capability may have been the key to his success. Darvas only used closing prices in his box strategy, so the lack of real-time data filtered out much of the noise in the markets that might have triggered premature buying or selling.

Some will argue that Darvas was only successful due to the fact that he invested during a bull market, but his technique is actually a precursor to similar momentum based strategies that some of the best traders use to this day.

You can read more about Darvas in his book, How I Made $2,000,000 in the Stock Market.

Photo Credit: David Sanger/Digital Vision/Getty Images

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