Market Discussions

As a trader who basis his trades strictly on technical analysis i've thought about applying the mechanics to eve-o as well. In my experience its not as accurate as what you find in the real market simply because you're dealing with a base (minerals) that is fluid. In the real market you can get a measure of supply and demand with a finite number of shares. You simply cannot apply technical analysis to a dataset that is nearly infinite. (Ie minerals and all items derived directly from it).

Much less than that

TA tends to use lagging indicators based on moving averages and other math formulas. It "decides for you".

Price action is based on reading price patterns with no math and no formulas, it's either small lagging or zero lagging.

Double tops again

After Megacyte, here is another example of a double top: Facebook.

As some will recall, at IPO launch we had some discussion on SCC-Lounge:

[ 2012.05.18 23:09:08 ] JD Rocketfeller > "When facebook stock fell to $38 on Friday morning, traders say the IPO's lead underwriter Morgan Stanley stepped in to prevent the price from slipping below the IPO level."
[ 2012.05.18 23:09:27 ] JD Rocketfeller > that would have been quite embarassing
[ 2012.05.18 23:09:36 ] Thomas Hurt > doesnt bode well for monday trading
[ 2012.05.18 23:10:33 ] Vaerah Vahrokha > it's like seeing the rampant years 2000 again.
...
[ 2012.05.18 23:25:55 ] Caleb Ayrania > no matter what FB is going to fall flat on its face as a share
...
[ 2012.05.18 23:26:10 ] JD Rocketfeller > and you know that how caleb
...
[ 2012.05.18 23:30:03 ] Vaerah Vahrokha > https://www.tradingview.com/e/ule8fswV/ go on 15 minutes chart. Nice double top
[ 2012.05.18 23:30:03 ] corestwo > nah
[ 2012.05.18 23:30:05 ] Caleb Ayrania > Its as "valuable" as JIta
[ 2012.05.18 23:30:24 ] Vaerah Vahrokha > textbook double top
...
[ 2012.05.18 23:37:59 ] Vaerah Vahrokha > Facebook's Launch Sputters
[ 2012.05.18 23:38:19 ] Rhivre > I dont think the press today is accurate though VV
[ 2012.05.18 23:38:52 ] corestwo > to be fair first day trading was all the insiders making lots and lots of money.
[ 2012.05.18 23:38:54 ] corestwo > :P
[ 2012.05.18 23:38:56 ] Rhivre > Like I said, they sold 80m shares in 30s, and a load of those got dumped for a quick profit "****, I made 6 dollars per share in 30 mins, lets sell and get a new boat"
[ 2012.05.18 23:39:12 ] JD Rocketfeller > do you know how IPO's work VV
...
[ 2012.05.18 23:41:22 ] Vaerah Vahrokha > to me it seems that when the underwriters have to toss money just to keep parity, then it's not a great day
[ 2012.05.18 23:42:05 ] JD Rocketfeller > I'm not sayign the IPO was a success, or that facebook is fairly valued but if an IPO jumps up a lot on the first day that means the stock wasnt well priced, that means the corporation could have raised more money for itself
[ 2012.05.18 23:42:06 ] Vaerah Vahrokha > I can imagine a double top but a 2 hours one... come on
[ 2012.05.18 23:42:10 ] JD Rocketfeller > if it had released stock at a higher price
[ 2012.05.18 23:42:39 ] Caleb Ayrania > You always get a hype bump on most IPOs
...


Now let's look at the example, this also happens in EvE markets a lot.

Here's more or less what was available in the first hours.

It's pretty easy to see that there's a M shaped double top forming up.

As seen in the previous Megacyte double top example, we can draw a possible double top price target (*): it's about the same height of the double top carried over the bottom of the double top iteself (static double tops only).

In this picture I have drawn a rectangle around the double top and then segments pointing at the price target.

This is what happened to the stock next.
It's possible to see how the target was reached. As per text book.


(*) Target means: minimum distance price will try and go to a certain predicted level. It might fail in case there are very important price levels / BRNs in the way (it will stop there). I stated "minimum" distance because once price arrived at the target it's free to do what it wants, including continuing in the same direction.

Both EvE and RL markets follow the same basic rules

Some times, knowing how some very simple rules would make you a killing.
One of these basic rules is: when you see a pin bar, and you know where price is going (refer to the previous articles), then you know where price will go in the next bars with a good degree of approximation.

I will now make a direct example that happened in EvE and the identical scenario (just bearish instead of bullish) happened in RL trading and happens all the time.

Let's look at this old PLEX monthly graph. Does not seem to make a lot of sense right?
There is a fat green (bullish) bar going up and up till BRN 500 and then... WHAM! Massive drop in price and it forms a funny super thin bar.

Now, the secret at trading is to always, always, always understand what price is doing (WPD).

Let's look at the green bar again. It's fat. It's big. Too big. Too vertical. When price does this, we say price went "hyperbolical". Price needs to breath and swing else it crushes on itself.

So we have this pile of buyers all playing lemmings and compulsively buying PLEXes. At 500M we know we might have a strong reaction. Why? Because 500M is a BRN, that is, people will use it as an easy to "see" target.
In fact, look at the upper bar shadow (the "wick"): it's quite long. It's actually longer than the tail (the other wick). Big shadow = many sellers.

Shadow > tail = sellers > buyers.

That was some good sell signal, and in fact price crashed so hard that it went all the way down to hit BRN 400. Once at 400, the opposite of the above happened: buyers saw 400M as a fair price to start buying again and so they did.
At the end of the month, when the bar closed, we had this red (slightly bearish) strange thin bar called pin bar.

Pin bars have many nice properties. One of them is:

if there are no major impediments, price will move from the pin bar till it reaches the top of the bar before it.

Another secondary rule is: a pin bar will try extend for a distance similar to its tail length. This happens because pin bars are just miniature head and shoulder patterns, which behave exactly like this. If we went to lower time frames we'd see how the pin bar decomposes into an head and shoulders.

As the previous bar (the green one) hit 500M, then we know that the pin bar will try to get to 500 again. Usually it does not happen right at the next bar but it may take a while. Regardless, it usually hits the target after few bars.

Now, a trader who knew about this simple rule would have made a safe 12% profit, from 442M to 500M per PLEX with no risk.

Here is what happened next.

It's possible to see how the next bars indeed got to BRN 500.

Actually we can even see a second example. Look at that opposite direction pin bar, the one but last bar to the right.
You see its previous (green) bar hit 475M with its tail?
Now look where the bar after the pin bar landed: exactly at 475M.

In the next article I'll post the same setup traded in RL, following the same rules.

More on EvE and RL trading pin bars

Pin bars are a very, very fundamental tool in the hands of the trader.
You can make a RL living just by knowing this 1 bar. I'd say 80% of my RL trades are initiated by a pin bar (PB).

So here are some more EvE and RL examples introducing some additional details.

1) General rule: bullish (tail down) PB will try and reach the high of the bar before it. Bearish (tail up) PB will try and reach the low of the bar before it.

2) It's not fundamental, but very good that the PB is of the proper color. I.e. a bullish PB is best if it's green since it shows buyers are winning, a bearish PB is best if it's red since it shows sellers are winning.

3) Pin bars will NOT reach the exact pip / ISK, trading is about dealing with human emotions and supply and demand. Neither is absolutely precise. Even then, you can achieve some impressive precision (see previous article).

4) Pin bars will work if they are in trend. I.e. a bullish PB will probably reach its target if it's in an uptrend, it might fall short if it's clashing against a downtrend (also known as general, important market rule: "the trend is your friend").

5) Pin bars WILL be stopped by price levels. Not always but often enough. If a price level is also a BRN and the PB hits it from the wrong side (i.e. a bullish PB hitting a resistance BRN right above) it will fall short if not stopped completely.

6) There is a very, very pesky kind of PB "evil twin" called IPB or Inverse Pin Bar that will make your life a pain until you master how to read where the trend is going (up / down / sideways). These look like PBs but are engulfed and annihilated by the next bar. You will find them in shady places, like where you don't want to use a PB anyway, because you are in one of the situations listed above (i.e. hitting a resistance with a bullish PB).


Now let's see an example: Technetium weekly chart.

Little off-topic.
As you can see, the market power is so insane that even Goonswarm cannot undo its very structure and trend lines, they are still the same since months ago. Now try on a liquid market like Tritanium, the market will chew you and spit your little pieces around.
Technetium, if left to follow its natural course, is going to hit about 200k and then form a second top. The rest is known story (huge drop to double top natural target which would be 130k), they can only make it into a RM.

Anyway, back on topic.
Look at some PB examples starting from the left.
2 bars before the first bar labelled as "PB" we have a fail bullish PB. Why fail? Because it closed below BRN 100k. I stress on price levels a lot, because they are that powerful, they can heavily affect a market. Markets resonate and are attracted around them, like quartz crystals do in electronic equipment.
The first bar labelled PB, instead, is an example of case 2) above: it's a bullish PB because its tail is below, it also properly closes above a support (= will be propelled by buyers) but it's red, that is buyers are not *that* strong. It still reaches its target, the bar before it has just a tiny 2-3 pixels worth of shadow (the "wick" above bars) so that's the target, as lame as it looks like.

The second PB is very large. It also spans *two* bars. Due to the fractal nature of the markets, some bars are macro bars formed by inner bars. If you could see this graph on a 2 weeks scale instead of 1 week, those 2 bars would merge into one PB. It's a big, strong PB with a lot of meanings I am unable to discuss in the little space I have on this forum. Suffice to say that a RL trader by looking at its size, position and being 2W wide can know in advance:

- It can cause a direct inversion (ie flipping a trend) at once.
- It is the second piece of a W shaped double bottom (the second piece being the "failed" PB described above). This means price will rise. In fact look where price went up to!
- It is a controlling bar, an ultra advanced market concept that lets you know how the next bars will behave and that price will get to one of the bar's wicks.

The third PB labelled as such is once again a not-very-good-looking one because it sits on the proper BRN 130k but it's red.
But as I said above, that's not fundamental, in fact if you look at the bar before it setting the target, you'll notice how the subsequent bar past the PB reached such target.
If you are a good observer, you'll probably noticed that bar prior this PB is a PB itself. It's another failed one though, as it's bearish (tail up) yet color is green AND smacks right against the BRN from the wrong side (bearish PB hitting a strong BRN support). Hence it won't reach any target.

The next PB we see is all at the top. It's once again a bar whose color is not really OK but as you see it reaches the massive target it got. It took 4 bars but in the end it manages to make price travel all the way down to the minimum of the bar prior to it (hitting W support 172k).

The last bar, once again, has mismatched color. But it's already going to its target, which is set by the red bar before it and therefore it would hit BRN 200k. The PB is counter trend though (see point 4) above) so it might fall short due to the intense sellers pressure.

Next article will cover the same stuff but in RL trading.

More on patterns

Price tends to resonate between invisible walls made by supply and demand points of equilibrium.

It's somewhat akin to standing waves, they may be even graphically shown by using appropriate devices.


Today I post about a trading opportunity on USDCHF that shows patterns in a clear way (something not very common in EvE markets).


Daily graph

By looking at this picture, the overall long trend is going upwards. In the last days we had a pattern I drawn between two diagonal trend lines.
It's a "dynamic Range Market" or dynamic RM.

This particular RM has another special property: it is formed by descending swings going basically against an ascending long term market. This is a market "pause" and is known as flag.
Flags that dive down are called "bullish flags", because price runs back up again once they are done and continues its evolution.

As you can see RMs are a broad family, with "specializations" like a proper taxonomy one day I might post somewhere. If you are programmer: RMs are the parent class, the various types inherit from the parent, the confirmed types (that is those that will work and send price where it should) are a subset of those children classes.

Anyway this flag is running since 9 days, it will eventually break or transform itself in another RM called bearish channel (will talk about it in another article).

Now, since the overall trend is bullish, only long trades should be initiated. Going against the trend WILL hurt you so don't take this trade unless you know how price works very, very well.

However for didactic sake we'll look for a short trading opportunity. This will also show the fractal nature of the markets, where a bar or a pattern in reality is a sum of smaller bars and patterns.


4 hours bars graph

Zooming in a 4 hours bars chart we see how the last 3 bars "expanded" into another interesting RM called "triple top". Shape: /\/\/\
It's the cousin of the M shaped double top and does the same stuff: makes price drop.

It's called triple top because - unsurprisingly - there are 3 peaks standing out of what otherwise would be "just another RM".

If prices breaks below it and then retraces back to its support and makes it resistance then we may initiate a short trade.


1 hour bars graph

Zooming in again we now see how a triple top in reality was an head and shoulders, another RM we have discussed about at length in the past.

The head and shoulders of course has the same effect of the above. Just because we zoom in does not mean that the patterns we find will change their final meaning: price wants to go down.
Once again, take this with a grain of salt because it's counter trend = way less reliable.

As discussed before, the projected head and shoulders target is the height of the pattern.

Those who take the trade are advised having a lot of caution and take profit at the end of the price action bar that will initiate the pattern and then at the RM bottom below and finally close completely at pattern target.

Edit: the eyeballed head and shoulder profits is a bit too far. It should have been put at the bottom of the small RM above it.

About price reading per se and another example of double top

Some more food for thought about this "voodoo" and why it generally works.

Imagine you strike a guitar G chord. Nothing, really nothing on Earth guarantees that it will generate a G sound at all.
It could...

- break.
- the chord could be lax and thus play a deeper tone.
- the crimping could be lax and the chord could just fold or ply.
- an object could have been put on that chord and thus causing it to play strange or not at all.

But generally, it will produce his G note.

Markets work the same. There's a demand fluctuation and supply reacts.
A guy dumps stock. Prices sinks like a coil, like a ripple, then it rebounds. We see this in the rule "a pin bar target will reach the high of the previous bar". A pin bar is exactly somebody tossing stuff on the market and the market reacting in the opposite direction in the next bars.


Anyway this is a still ongoing trade, I posted about it in a private forum few days ago. So I will update some charts in real time and will reliably predict where price will go, despite it being considered "brownian motion" and "unpredictable" and "you know nothing of the fundamentals".

Edit:

This is the same market shown on a Metatrader 4 trading platform, which I use to analyze the markets (the other platform sucks a bit for that).

Now price is testing the yellow line.

You can witness it in real time (and any market history will show my posting times vs the charts), I placed the yellow line *before* price went there and look what happens?

This mystery brownian motion price is actually obeying me!

How kind of him, eh?

Well, actually it's me who am just following very easy, basic rules who draw those lines where price will go. It's all known before hand.

I think the problem with comparing eve economy to real life is EVEs economy can and often does change just because a programer comes in and changes the loot drop tables, or they just throw in a new module out of the blue or just change the way a ship or module works - just to mix it up.

Unlike in the real world where you can learn about investments and perhaps see these changes coming many of these changes just happen and seem to happen frequently. Thats why long term planning doesn't work in eve.

An awesome video showing a price action trade in quasi-real time.

This has not been done with the WPD-WPG method but with James16's. It's still almost the same.

Here is the direct link to the video.

It's in WMV format.

One of the peculiarities of the video is that is shows a typical July / august market situation similar to EvE's minerals / high volume items.

So, by looking at the video you can gain insight about how to get more e-rich in EvE as well.

Those who haunt the SCC Lounge in game chat know that I often talk about trading double bottoms in the summer.

This is the RL demonstration about how it's done.