A more in depth study of a market: Mexallon
This and the next article will focus on something different than graphs and that ultimately is what the charts "talk about": the market structure.
Price is subject to many, often random pressures, exactly like we may talk and say many different words. What's less random, is the fact we use a language to talk those words. Markets are not different, they are made by us and for us and they are expressed with their own dictionary.
Markets exhibit a structure that may be read. Trading becomes like a guess game, where a guy begins a sentence and we have to finish it in the future for him. Sometimes it's really easy and even obvious, other times it's hard or even impossible. In the first case we will trade, in the latter we don't accept to trade and switch to another market.
Let's start with Mexallon, a didactical market that soon-ish will give many opportunities to make a lot of ISK.
I posted in game data about such market right today on another thread
. Please read that thread to learn how to use the provided file and basically get yourself to show on your screen the graphs I am showing next. You can, I have given you everything: the free software, the free data, the teaching.
Maybe one day I might even see if there's interest in free webinars about how to trade.
So, let's expand and install the provided ZIP file and fire up the Multicharts software. Following the above link instructions, get candle bars showing and select the Monthly time frame.
At this point you shall see a graph like this:Please visit your user settings to re-enable images.
Yours will have more blank space after the graph, I edited mine in order to fit in this forum layout.
Now look at this thing. Does it say anything to you? No?
The green (candlestick) bars are when price went up, the red ones are when price went down. Easy enough, isn't it?
You'll probably notice the bars have two "barbs": one coming out from the top and the other from the bottom. Here's how to read every candle bar:
The top of the thick body bar is the "open", the bottom is the "close", the upper "barb" is called shadow and represents the "high", the lower "barb" is called tail and represents the "low". Each bar is also considered in the "OHLC" bar category, because they provide those four informations.
Each day / week / month is a session (depending on the time scale you selected) and they represent the RL exchange sessions of the same duration.
Each new day, a security gets an "open" price value when the exchange opens, then the price bounces up and down within a minimum (tail) and maximum (shadow). At the end of the exchange day, the last price is the "close".
Each of those four information are very important: the open and close are the horsepower that fuels our wallets, the high and low tell us how many buyers and sellers were / are in the market today. A long tail pushes the candle (and thus the price) upwards, we say there are a lot of buyers. A long shadow over the candle pushes the price down, we say there are a lot of sellers.
In order to profitably trade we must go with the flow. We must trade in the direction of the trend. We must buy on green candles (if they are in an ascending trend) and sell on red candles (if they are in a descending trend)
Moreover, price articulates his words with some simple patterns I listed in earlier articles: pin bars (PB), BEOB, BUOB, DBHLC, DBLHC (and IB aka Inside Bars, but they are too advanced for the average EvE player).