I've been working on Helios for quite some time now and I've finally gotten down to the action combat part. The system uses collision detection to define hits, combined with hit boxes on the monster, damage gets calculated. Swords have a refraction trail behind them that is generated at runtime.
When a monster is hit on the head 30% extra damage will be dealt. Also weapons can be enchanted to gain extra attributes such as knock back strength, fire strength, ice etc.
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If you would like to see more please visit Helios-online.net