Using Volume and Open Interest in Technical Analysis

Volume and Open interest is an indicator used by traders to identify trends and their reversals. 

Volume: 

Volume represents the total amount of trading activity.The greater the amount of trading during a market session the higher will be the trading volume.

It is supposed that volume precedes price; a trend reversal can be read in the volume before been present in the price chart. The greater the volume the higher the expectation that the existing trend will continue.

Open interest: 

Open Interest is the total number of outstanding contracts held at the end of each day. It measures the flow of money into futures market. It determine the total open interest for any given market.

Interpretation: 

 Price 

Volume  

Open Interest 

Interpretation 

Increasing 

Increasing

Increasing 

Strong Market

Increasing

Decreasing 

Decreasing 

Weakening Market

Decreasing

Increasing 

Increasing

Weak Market

Decreasing

Decreasing

Decreasing 

Strengthening Market

chart2

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