Reagents and solvents can be found throught the world. Reagents determine the effects of a potion, and the solvent determines the level of a potion.
There are twenty types of reagents. See the reagent page for more information.
Potions and poisons can only be created at an alchemy station. All alchemy stations are the same. They are scattered throughout the world, and are usually found in Mage's Guilds or individual shops.
Each reagent has four traits. A trait is expressed in a potion when two reagents with matching traits are combined. If three reagents are combined and all three have the same trait, the effect of that trait is increased.
To create a potion or poison, select two or three reagents and one solvent. Initially, only two reagents may be used. Acquiring the "Laboratory Use" skill in the alchemy skill line allows the use of three reagents. Use the Potion Calculator to identify which reagents and solvents to use for potions with specific attributes. If no reagents have matching traits, the reagents and solvent are consumed without creating a potion.
The alchemy skill line is leveled up by creating potions and poisons. The trait identifier tool can be used to identify all the traits of reagents as you level up the skill line.
The experience awarded increases with the level of the potion, so always use the highest-level solvent possible. Immediately acquire the "Solvent Proficiency" upgrades as they become available, allowing the use of higher-level solvents.
It's best to use two reagents instead of three when leveling up alchemy (unless you intend to use the potions). Using three reagents doesn't seem to provide enough experience as the potions are created to justify wasting so many resources. Potions and poisons seem to provide the same level of experience.
Eventually, you'll probably want to fully upgrade every skill in the alchemy skill line. Initially, however, you'll probably want to focus on fully upgrading "Solvent Proficiency," and possibly acquiring only the basic "Keen Eye: Reagents" skill.
Although some people disagree, acquiring the "Keen Eye: Reagents" skill line earlier on a character can be useful. Alchemy reagents acquired when you're level one will still be useful when your character's level is at maximum, so you can stock pile them as you go instead of buying them or trying to find them later. Reagents often blend into the scenery and may be difficult to see. If you acquire this skill early, don't bother with the upgrades to the skill until you have a surplus of skill points. Having the reagents highlighted while further away is nice, but not a huge advantage.
Some people highly recommend "Medicinal Use" as an early upgrade. It increases the duration of potions on use. This may improve your stats if you intend to constantly use potions. Otherwise, wait until you have extra skill points to spend.
Solvent Proficiency: Allows you to make higher level potions. Acquire these upgrades as they become available by leveling up alchemy.
Keen Eye: Reagents: Reagents in the world will be easier to see when you are 20/30/40 meters away. Acquire the initial skill in this line early in the game, and the other upgrades when you have a surplus of skill points.
Medicinal Use: Potion effects last 10/20/30% longer. Helpful skill to have, but not crucial. Acquire these when you have enough skill points.
Chemistry: Produce 1/2/3 extra potions per crafting attempt. It's great being able to create four potions at once. Acquire this skill line when you have extra skill points and are creating a lot of potions for use.
Laboratory Use: Allows the use of an additional reagent while creating potions. Acquire this upgrade when you need to create a specific potion that requires three reagents. You can use the potion calculator to determine what reagent combinations suit your needs.
Snakesblood: Reduces negative effects in potions by 50/80/100%. Some powerful potions also have negative side effects. This skill counter-acts those effects. Don't worry about this skill until you frequently use potions with negative side-effects, which will likely only be after your character is in the higher levels.