Box Theory Breakout Trading with Rolling Price Channels

Summary

This document explains a breakout strategy based on price ranges, drawing on Nicolas Darvas’s box theory. A box is defined by a recent upper resistance level and lower support level. A close above the upper boundary is treated as a possible move into a higher range; a close below the lower boundary suggests a possible move into a lower one. The method also expects former resistance to act as support after an upward break, and former support to act as resistance after a downward break.

The example strategy calculates its boundaries from rolling highs and lows of a weighted price that gives the close extra weight, aiming to reduce the effect of extreme prices. It enters on boundary breaks and uses additional conditions involving the channel midpoint and shorter rolling range to exit or reverse. The document reports an hourly iron ore futures backtest with added slippage and fees, describing a rising equity curve and gains during strong trends, but gives no performance statistics. Range selection is subjective, and the claims are limited to the stated test period and market; no broader validation is shown.

Key ideas

• A price box uses recent highs and lows as resistance and support boundaries.
• A close beyond a box boundary is treated as a possible transition into a higher or lower range.
• The example calculates boundaries from a weighted price that emphasizes closing prices.
• Additional midpoint and shorter-range conditions govern exits or position changes.
• The reported backtest describes results qualitatively and does not establish performance across other markets or periods.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.