How to find open interest in stocks? How to extract meaning out of Option Chain? How to read open Interest data using StockEdge? Frequently Asked Questions What does open interest indicate? What is the difference between open interest and volume? What is the use of open interest? Should open interest considered while trading in options?
Bottom line:. What does open interest indicate? Yes the open interest should be definitely considered while trading in options. Tags: english. Share 13 Tweet Send. Elearnmarkets Elearnmarkets ELM is a complete financial market portal where the market experts have taken the onus to spread financial education. Related Posts. Comments 5 anil says:. Sakshi Agarwal says:. Hi, You can read more about open interest blogs here. Thank you for reading! Veeresh J Patil says:.
Really nice article. Good amount of information is given. Hi, Open interest reflects the number of contracts that are held by traders and investors in active positions, ready to be traded. Thank you for reading our blog! Keep Reading!! Leave a Reply Cancel reply Your email address will not be published.
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Welcome Back! Login to your account below. Forgotten Password? Money is, therefore, leaving the marketplace—this is taken as a bearish sign. If prices are in a downtrend and open interest is on the rise, some chartists believe that new money is coming into the market.
They think this pattern shows aggressive new short selling. They believe this scenario will lead to a continuation of a downtrend and a bearish condition.
Suppose the total open interest is falling off and prices are declining. This theory holds that the price decline is likely being caused by disgruntled long position holders being forced to liquidate their positions. Some technicians view this scenario as a strong position because they think the downtrend will end once all the sellers have sold their positions. According to the theory, high open interest at a market top and a dramatic price fall off should be considered bearish. That means all bulls who bought near the top of the market are now in a loss position.
Their panic to sell keeps the price action under pressure. Other analysts interpret some of these signals quite differently, mostly because they place less value on momentum. In particular, excessive short interest is seen by many as a bullish sign. Short selling is generally unprofitable, particularly after a significant downward movement.
However, naive price chasing often leads less informed speculators to short an asset after a decline. When the market rises, they have to cover.
The typical result is a short squeeze followed by a fierce rally. In general, momentum investors are not nearly as good at predicting trend reversals as their contrarian counterparts. While it is true that there is generally more buying and bullish price action all the way up, that does nothing to help investors decide when to sell.
In fact, volume often increases before, during, and after major market tops. Some of the most respected indicators are based on contrarian views. RSI is another useful contrarian technical indicator. There is no need to study a chart for rule-based signals. If you are a new technician trying to understand the basics, look at many different theories and indicators.
What works for some assets and investment styles will not work for others. Look at stocks, bonds, gold, and other commodities and see if a specific indicator works for a particular application.
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