Market Discussions

Elements in a market graph

Looking at the graph screenshot again, most relevant elements have been marked with numbers:

1) As discussed above, this button lets switch between graph and table format.

2) This selector ("Time") lets select the time frame for the graph and table. By properly setting up the time frame we may gather additional information, the most useful settings range from Year down to 3 months.

The "Right click graph to configure filters" option next to "Time" is also useful but beyond the scope of an introducing tutorial. Most of the time the graph is good as is, you might want to disable some features in case some market manipulators put in fake orders to make the graph become a thin horizontal line (to hide their activity).

3) and 4) The red and green lines / curves on the graph are labelled respectively as 5 and 20 days simple moving averages (SMAs). A moving average is a so called "lagging indicator". Its points are plotted by calculating the prices average of N days in the past. 5 days moving average means 5 days were considered in the computation. They are called "simple" because they are based on a basic average.
More advanced moving averages involve applying a bigger importance (weight) on the last few days, by using exponential averaging and other. EvE only comes with the simple kind (the least powerful). Moving averages are called "lagging indicators" because, since they are based on past days prices, they lag behind the current price action.

What a moving average does is to smooth the price variations so that you may see the price motions in a simpler way, like a game of "connect the dots with a line".
Multiple moving averages have different "speeds", a general rule of thumb of "ancient" technical analysis is to buy when the red (5 SMA) crosses the green (20) SMA from below and sell when the red SMA crosses the green SMA from above. But remember, those are ancient advices used decades ago. They still work sometimes in EvE because its markets behave like old markets but it's no way a reliable way to trade.

The only more or less reliable way to trade with moving averages has been explained in the first part of the old forums first part of Experiment #01: RL finance analysis applied to EvE.

5) Donchian channel is another ancient lagging indicator. It somewhat helps determining whether the price is pushing up or not.

6) Median Day Price represents the median (not the average!) of the trades prices day after day. It's the "yellow dots" that form the price graph.

7) This is the price graph with all the elements: the daily sequence of yellow dots representing the prices median superimposed by Donchian channel and moving averages.

There are also some other very important elements: above and below each price dot, there are two very thin "barbs" or "wicks". They represent the minimum and maximum for the prices of that day and are a very useful and not lagging instrument to "see" the market sentiment and the amount of buyers and sellers in any given day.

As shown by this screenshot, the barb sitting above the yellow price dot is called "shadow", the one sitting below is called "tail". It's possible for some sessions to show just one of those or even none.

8) Price levels. These lines are automatically calculated and rescaled. Sometimes they help, since some traders place buy and sell orders in their proximity, some times they don't and only add to confusion.

9) Volume. This is another non lagging indicator that may help determine whether a price increase is due to true demand or is just a speculative bubble ready to burst and crash. Volume also indirectly helps determining whether a market is liquid or not. If it is, it will tend to be smoother and speculations will be harder to setup. Markets with just a couple of items traded a day are dangerous!



In the next days more chapters will be added, showing how to read some of the many subtle hints the markets may give us about their past, present and future behaviors.

In short, Donchian channel is area between highest High-price during last 5 days and lowest Low-price during last 5 days (High and Low prices being those which are shown as lines on Market History Graph or in High and Low columns in Market History Table.)

nice tutorial +1

This would definitely deserve further research. For what I have learned by toying with EvE's cache it looks like it has one behavior for past days vs current. The current days seems "simplified" since it's managed in real time, while the past days are fully featured. We also have the additional variable of the data being sanitized, so who knows which is the real minimum and maximum? Were the "dumb" purchases sanitized as well? (IE the guy buying a badger for 250M)?




Markets are not just stocks or futures. The Forex market is officially open 24 hours a day from 5pm EST on Sunday until 4pm EST Friday yet most large brokers allow for week end trading as well (see Oanda).

It's a quite complex matter to discuss but here's a brief.

1) Actually what influences a "continuous" market like EvE or Forex are not paper-declared hours but actual market interactions. I.e. you may look for autorithative price action before the UK open, before the USA open and so on. Why? Because the markets "live" and "move" in the first minutes / hours of those sub-sessions. I would look for analysis on previous day price action before UK open so that after UK opens the price will soar and bring in the profits.

2) Market maker brokers each have their own "daily candle open" times. Often they make it coincide with one of the big market trading hours but it's not a given. A relevant percentage of traders use such brokers.

3) Some trading packages let you define your own opening and closing times, in order to let you analyze markets at "human" hours and not i.e. at 3am. While this yields to less reliable analysis (since markets do not care about your hours or how you split YOUR candles), quite often it still works. In fact, candle bars have many neat properties (like in math you may get commutative property, permutation of terms etc). One of these properties lets you split a candle saying "something" into two saying the same "something" and vice versa. I.e. the "real" outer market could display a buy signal due to a pin bar, while your platform might split it into a two candles BUOB (another buy signal candle formation).

Identifying trends

Knowing when a market is trending and when it is ranging helps with trading. Traders want to trade in the same direction of the trend and never counter-trend (an old trader motto says: “the trend is your friend”). It is also possible to profitably trade inside RMs but it’s harder, expecially because in EvE it’s impossible to short sell. Therefore once identified a RM, it’s necessary to buy when price hits its bottom and sell when it hits its top.

Which elements make it possible to say “this is a RM” and which others “this is a trend”?

As said above, price moves in a zig zag motion, each zig zag is called “swing”. The placement of the next zig zags determines whether we are in a trend or RM. A zig zag looking like a nice ladder with ascending or descending swings is a trend. A random zig zag with same level or random swings is a RM.

This picture shows a descending trend or downtrend.

The blue segments are the price swinging down, the “HL” and “LL” labels mark the swings tops and bottoms. In particular, a donwtrend is identified by an orderly sequence of Higher Lows (HL) followed by Lower Lows (LL), like descending a ladder. The red dotted lines and arrows show the zig zags.

This next picture shows an ascending trend or uptrend.

This is exactly the most profitable setup in EvE Online. This time the blue segment (swings) climbs up forming Higher Lows (HL) and then Higher Highs (HH) like a climbing ladder. The zig zags show the same behavior. Uptrends are fairly rare and often caused by new patches altering the demand / supply equilibrium towards the demand side.

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In the next section we will see both what are range markets, the dos and don'ts and most of all, EvE trading tips including both buy and hold and high frequency (0.01 ISK) trading ones.

Last but not least, there are four very important rules about the support and resistance price levels:

1) The more price hits them, the stronger they become. Traders confidence on these levels “holding” against price rises over time and they place more and more orders mutually reinforcing themselves and their beliefs.

2) The more factors converge into forming a support or resistance, the stronger it tends to get. If a support or resistance happen to coincide with an easily remembered round number (aka RN, i.e. 2900 ISK pu) or, even more, big round number (aka BRN, i.e. 3000 ISK pu), those price level lines hold stronger. Rarely, there are further, exotic convergences: an horizontal support that also coincides with the extension of a diagonal previous support, or a support sitting at a so called Fibonacci number (humorous link). The more the factors involved in this so called “convergence” the stronger the price level holds.

3) Markets have a very strong memory. Once price explored a new support / resistance, that level will be reused later, sometimes after years. There are some old stocks that persistently hit levels they reached 30 years in the past. This memory effect is due to traders using graphs (self fulfilling prophecy) but also because that market demand / support equilibrium “resonates” at those levels by itself. In EvE this effect is reduced both because very few traders use graphs and markets liquidity is much lower than the real stocks markets, therefore patch and player induced variations may affect markets much more than they do in real markets. Each market has his own temper, some have strong memory others don’t.

4) When a breach of those levels occurs, it’s sudden and strong, like a dam bursting. And very curiously, when price gets back to them, they switch “role”. Supports that held price up, become resistances that will try avoid price getting back up and vice versa.

How the whole mechanism works is shown by this picture.

In the first section of the price graph, marked as “1″, there is a RM. The red line is the resistance level where sellers liquidity prevails, the green line is the support level where buyers liquidity prevails.

Something happens to the demand / offer equilibrium and price breaks thru the support. It falls to a lower level (next green support line below) that very often was already reached in the past due to the above mentioned memory effect. Then it moves up and will hit what was the previous support line and the roles inversion happens: the former green support line above now acts as resistance (thus it’s painted red now, marked as “2″ on the chart).

Price forms another RM until something happes again and the market crashes down to the level marked as “3″ on the graph.

This time price decides to trend up, as the climbing up zig zags show, until it seems to hit a diagonal, dynamic support line marked as “4″ on the chart and bounces up and down forming a dynamic RM. Exactly as for the static (horizontal) RMs seen above, price may breach its RM bounds and then use the extension of the resistance as new support (marked as “5″).

Not incidentally, the first price zig zag close to “5″ snaps exactly where in the past, at the same level, we had the support of that RM marked as “2″. The last zig zag all to the right also acts in a similar way (snaps to the same past RM’s resistance). This picture shows dashed lines to visually aid seeing the connections.

Thanks a lot!

Your writing gave me a lot better understanding of the graphs, I might even try start trading by myself.