Futures trading volume and open interest
Futures traders have the benefit of having access to volume and Open Interest data. In order to form a sophisticated trade analysis and make reasonable assumptions about what is happening on your charts, being able to combine the information provided by volume, Open Interest and price can give traders an extra edge. Volume shows the amount of trading activity in a given market on any given day. Rising volume means that there was more trading activity and more contracts were traded than on the previous day.
During trends, high and rising volume means that trading activity supports the ongoing trend and a trend continuation is likely because more investors or more contracts traded support current price movements. Technical analysis also uses volume information to identify potential reversals — if during an uptrend volume declines, and momentum falls, it signals that fewer people are buying into the trend and conviction is declining. Remember that for each buyer you need a seller.
Especially immediately before a new trend or during strong trends, an increase in Open Interest indicates that a breakout is likely or that the trend will strengthen since more investors are looking to enter a trade. When it comes to price, there are a few things that need to be taken into consideration when analyzing charts:.
Of course, this is a very simplified way of looking at price information, but this article has the purpose of breaking down the underlying components that drive the markets.
During consolidations, volume and Open Interest is typically low, declining and below average. When, after a consolation and a period of below average volume and Open Interest, the price suddenly starts to move into one direction while volume and Open Interest picks up, it often foreshadows the start of a new trend.
When more investors enter positions, and more interest exists, it shows consensus with regards to price movements. The chart below describes how price, volume and Open Interest analysis work together. Before the recent bearish phase, price moved higher for a few days, but volume and Open Interest were very low — both metrics saw a significant drop.
Once price started to move lower, volume picked up fast and Open Interest followed shortly after. During the bearish trend, volume and Open Interest kept increasing. Then, as the bearish trend slowed down, volume declined, and Open Interest was flat. Price volatility increases and just keeps moving sideways.
Open Interest and volume analysis can often be a leading indicator when it comes to identifying market turns and reversals. Particularly at the key support and resistance levels, a change in Open Interest and volume can be probable predictors and warn traders in advance that market sentiment is undergoing a change. The chart of WTI Crude Oil below shows how volume, Open Interest, and price analysis can help improve the understanding of market activity: A new trend is supported by rising volume and increasing Open Interest; fading momentum after a trend is foreshadowed by a drop in Open Interest and a turn in volume.
There is a risk of loss in futures trading. Past performance is not indicative of future results. Optimus Futures is a leading online futures broker that caters to traders seeking fast execution and stable data feeds combined with aggressive margins and deep discount commissions. About Optimus Futures Optimus Futures is a leading online futures broker that caters to traders seeking fast execution and stable data feeds combined with aggressive margins and deep discount commissions.
In the second diagnostic stage, it is important to investigate the accuracy of the reactivity ratios by running additional checks. Model predictions (using reactivity ratio estimates) for the terpolymer composition over the polymerization trajectory are compared to experimentally measured terpolymer compositions. An futures trading volume and open interest agreement between predicted and experimental results reflects the reliability and accuracy of the reactivity ratios for the terpolymerization system.
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