Interpretation of futures open interest data 💯
There are four scenarios ❤️
1. Rise in price + Increase in open interest
👉 There is strength in moving the price higher. As the price rises more traders come to create long positions resulting in increase in open interest. It indicates bullish sentiment.
2. Fall in price + Increase in open interest
👉 There is strength in moving the price lower. As the price falls more traders come to create short positions and thus open interest increases. It indicates bearish sentiment.
3. Rise in price + Decrease in open interest
👉 There is weakness in moving the price higher. When price raises the short seller fears of escalating the price higher and exit from their positions and thus open interest decreases. It indicates short covering or bullish reversal.
4. Fall in price + Decrease in open interest
👉 There is weakness in moving the price lower. When price falls the buyer fears of plunging the price further and exit from their positions and thus open interest decreases. It indicates long unwinding or bearish reversal.
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