Box theory is currently one of the most widely used stock analysis theories by small retail investors, but it is also applied to the foreign exchange market.

Box theory was created by Darvas Nicola during his investment process in the U.S. securities market. Darvas Nicola believed that the local movement of indexes or stock prices is presented in the form of a single "box," while the overall trend is presented in the form of one "box" following another "box."

In essence, box theory is an extension of the concept of support and resistance lines. In other words, it involves dividing an upward or downward trend into several smaller trends, and then studying the highs and lows of these smaller trends. In an upward trend, after the price breaks through a new high, due to the public's fear of high prices, it is very likely to fall back, and then rise again, forming a box between the new high and the low point of the fall. In a downward trend, when the price falls to a new low, based on the strong rebound psychology, it is very likely to rise again, and then tend to go down, forming a box between the high point of the rebound and the new low, and then predicting the price trend according to the price fluctuations within the box.

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Since the basic characteristics of box theory can clearly see that this is an extension of the concept of support and resistance lines, when the price rises to a certain level, it will encounter resistance, and when it falls to a certain level, it will encounter support. Naturally, the price floats between certain levels. This kind of floating generates a lot of boxes.

Using box theory to find entry and exit opportunities

If the price trend is established as a box-shaped trend, the price naturally has high and low points. Whenever the price reaches the high point, the selling pressure is relatively heavy, and it should be sold; when the price returns to the low point, the support is strong, which is an opportunity to buy. This short-term operation can be maintained until the price breaks through the upper or lower limit of the box, and then change the trading strategy.Due to the price trend breaking through the upper boundary of the box, it indicates that the resistance has been overcome, and the price continues to rise. Once it falls back, the previous resistance level naturally forms support, causing the price to rebound, and another rising box is established. Therefore, when the price breaks through the resistance line and falls back, it naturally forms a buying point. At this time, buying in has a higher chance of profit and lower risk.

On the contrary, when the price trend breaks through the lower boundary of the box, it indicates that the support has been ineffective, and the price continues to fall. Once it rebounds, the previous support naturally forms resistance, causing the price to fall back, and another falling box is established. Therefore, when the price breaks through the support and rebounds, it is a selling point, and it is not suitable for buying, otherwise, the chance of loss is high, and the risk increases.

When using box theory technology for operation, the following points need to be grasped:

1. First, you must determine the price trend, determine the rising or falling market, and then look for the high and low points of each small market segment.

2. From the high and low turning points of each market segment, find the timing and appropriate price for buying or selling. The calculation method can be derived from the upper and lower limit range of the previous box, combined with the rise and fall range.

3. In the rising market, you should be bullish and not go against the trend to sell short. In the falling market, it is better to stop operating and not be bullish. This is the basic principle of going with the trend.

4. According to the operator's short-term operation experience and the sensitivity of the mind, decide to carry out the daily box operation or the box operation of each small market segment. It is undeniable that the profit of daily operation is low and the risk is high, so it is best to carry out the box operation for a longer time.

5. As mentioned earlier, for body changes, it is best to observe one or two box changes before deciding whether to buy or sell, unless it is an experienced veteran, do not easily start in the first box.

6. Daily or short-term box changes are very susceptible to the impact of sudden factors, resulting in irregular changes, and should be vigilant.7. When using box operations, it is best to take the general trend as the premise and focus on each market situation, and don't rush to take advantage of opportunities.