The term “open interest” of a futures contract refers to the number of outstanding positions either long or short that are not squared off.
Basic concept of derivatives trading is that the sum of it results is always zero. That means for every outstanding long position there exist a corresponding short position in the same month futures contract & vice versa.
By gauging open interest and volume with technical indicators can provide important hindsight in underlying trend prevailing in the market. Prices increasing with increase in both open interest and volumes, indicates bullishness. Similarly prices decreasing with an increase in open interest and volumes, indicates bearishness. If both the open interest and volumes are decreasing with increase/decrease in prices, it signals a reversal of the prevailing trend.
A steady OI typically indicates a possible market top/ bottom, succeeding with trend reversal.
It is very important to use Technical indicators along with the OI & Volume analysis.
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1 comment:
Dear Minesh,
Thanks a million to you and i salute to your valuable advice, as always without your own interest you give good advice to near and dear ones with which everyone gets benefited.
God bless you dear friend and wish you continue this good work forever.
Cheers,
Satpal Singh
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