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A contract has both a buyer and a seller so the two market participants combine to make one contract. The open interest position that is reported each day reflects the increase or decrease in the number of contracts that traded for the respective day. An increase in open interest along with an increase in price is said to confirm an upward trend. An increase in open interest with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal. The pictures below show how to track this study in a Market Profile Chart. They track both Open Interest and Volume
A contract has both a buyer and a seller so the two market participants combine to make one contract. The open interest position that is reported each day reflects the increase or decrease in the number of contracts that traded for the respective day. An increase in open interest along with an increase in price is said to confirm an upward trend. An increase in open interest with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal. The pictures below show how to track this study in a Market Profile Chart. They track both Open Interest and Volume
With rising prices and if rising open interest is increasing, this is a bullish sign. More equity is entering the market.
With rising prices and if rising open interest is increasing, this is a bullish sign. More equity is entering the market.
If open interest falls off in a rising trend and price starts to move sideways, take this as a warning sign of a top.
If open interest falls off in a rising trend and price starts to move sideways, take this as a warning sign of a top.
High open interest at market tops is a bearish signal, especially if there is long liquidation, since this will force many of the weaker longs to exit.
High open interest at market tops is a bearish signal, especially if there is long liquidation, since this will force many of the weaker longs to exit.
An unusually high or record open interest in a bull or bear market is a danger signal. When a rising trend of open interest begins to reverse, expect a bull or bear trend to start.
An unusually high or record open interest in a bull or bear market is a danger signal. When a rising trend of open interest begins to reverse, expect a bull or bear trend to start.
A breakout from a bracketing market will be stronger if open interest rises during the consolidation period. When the price moves out of the consolidation, these traders will liquidate their positions.
A breakout from a bracketing market will be stronger if open interest rises during the consolidation period. When the price moves out of the consolidation, these traders will liquidate their positions.
Rising prices and a decline in open interest is bearish. This market condition develops because short covering, better known as "Old Business" is responsible for the rise. In this case, equity is leaving the market place. When the short covering is exhasusted, prices will decline, many times through previous support levels with ease.
Rising prices and a decline in open interest is bearish. This market condition develops because short covering, better known as "Old Business" is responsible for the rise. In this case, equity is leaving the market place. When the short covering is exhasusted, prices will decline, many times through previous support levels with ease.
If prices are moving lower and open interest rises, this is because new short equity is entering the market. This is bearish.
If prices are moving lower and open interest rises, this is because new short equity is entering the market. This is bearish.
A decline in price and open interest indicates liquidation of long positions. This is bearish, but may signal an end if price goes into a consolidation and open interest picks up and value starts to overlap.
A decline in price and open interest indicates liquidation of long positions. This is bearish, but may signal an end if price goes into a consolidation and open interest picks up and value starts to overlap.
If both price, volume and open interest are up, the market is decidedly strong.
If both price, volume and open interest are up, the market is decidedly strong.
If prices are rising and the volume and open interest are down, the market is losing equity interest.
If prices are rising and the volume and open interest are down, the market is losing equity interest.
If prices are declining and the volume and open interest are up, the market is losing equity interest, although if prices are declining and the volume and open interest are down, the market is gaining equity interest.
If prices are declining and the volume and open interest are up, the market is losing equity interest, although if prices are declining and the volume and open interest are down, the market is gaining equity interest.
Hence, price appreciation while open interest is increasing, identifies new equity coming into the market and is bullish. If price is rising and open interest is decreasing, short covering is the reason for the price increase and is usually short lived. This is considered as "Old Business" leaving the market and is bearish.
Hence, price appreciation while open interest is increasing, identifies new equity coming into the market and is bullish. If price is rising and open interest is decreasing, short covering is the reason for the price increase and is usually short lived. This is considered as "Old Business" leaving the market and is bearish.
If prices are in a downtrend and open interest is on the rise, we know that new equity is entering the market, showing aggressive new short selling, increasing the fuel during the selloff.
If prices are in a downtrend and open interest is on the rise, we know that new equity is entering the market, showing aggressive new short selling, increasing the fuel during the selloff.
If open interest is decreasing and prices are falling, the selloff is caused by the liquidation of long positions. This is the opposite of short covering and considered bullish, as there is no one left to sell after the climax has taken place.
If open interest is decreasing and prices are falling, the selloff is caused by the liquidation of long positions. This is the opposite of short covering and considered bullish, as there is no one left to sell after the climax has taken place.
As in all circumcstances there are nuances, but from a holistic approach, combined with Market Profile Theory, this study provides powerfull insight to the markets structure.
As in all circumcstances there are nuances, but from a holistic approach, combined with Market Profile Theory, this study provides powerfull insight to the markets structure.
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