Open interest (also referred to as open contracts or open commitments) refers to the overall range of spinoff contracts, like futures and options, that haven’t been settled within the straight off previous period of time for a selected underlying security. Nifty open interest conjointly means that the overall range of Nifty options and/or futures contracts that don’t seem to be closed or delivered on a selected day. Conjointly the amount of buy market orders before the stock exchange opens.
How to use the first image: The more open interest in a call option means the more shorts in it and the strong resistance in that zone. The more open interest in a put option means the more shorts in it and the strong support in that zone. Increase in OI of any call or put denotes writing in the same and Nifty likely to move in the opposite direction. Sudden decrease in OI of any call or put denotes short covering in the same and Nifty likely to move in the direction of the call or put.
How to use the second image: Increase in OI of any call or put denotes writing in the same and Nifty likely to move in the opposite direction. Sudden decrease in OI of any call or put denotes short covering in the same and Nifty likely to move in the direction of the call or put.
By following Volume and Nifty Open Interest, relative to current price, traders will get a far better plan on the strength of a current trend or the strength of a market breakout from a range. Following Volume and Open Interest isn’t rocket science and as indicators they’re fairly easy and typically reliable. Each Volume and Open Interest are typically used as secondary indicators, and area unit best accustomed make sure trade choices as against initiating them.
Volume represents the entire quantity of trade, or what percentage contracts, have modified hands in an exceedingly given day. A fast consider the volume bars can show that days trade had significant trading and on some other days trade was light-weight. The volume figure are often accustomed verify the strength of this trend. If volume is high, or increasing, then the pressure behind the trend is high, and therefore the current trend is probably going to continue (up or down). If volume is falling, then the pressure behind the trend is weakening and a reversal perhaps round the corner.
Nifty Open Interest measures the quantity of outstanding contracts at the tip of every day. Actually, Nifty Open Interest solely records half the outstanding contracts, since for every emptor there should even be a merchandiser, however this doesn’t have an effect on however we have a tendency to use open interest. Open Interest also can be taken because the flow of cash coming into and exiting a market. If Nifty Open Interest is increasing then this can be a symptom that there’s new buying going down, and traders expect this trend to continue. Conversely if Open Interest is declining it shows that traders are taking their cash out of the market, or liquidating, and therefore the current trend can doubtless finish presently. Similarly, if Nifty Open Interest levels off when prices advance, it’s a symptom that no new buying is going down and therefore the current uptrend is losing steam.
When decoding volume and open interest confine mind that:
- Once price, volume and open interest are all rising, price can still rise;
- Once prices are rising, however volume and open interest are falling, this can be a symptom that this uptrend is weakening;
- Once prices are falling, however volume and open interest are rising, then the market is weak and therefore the current downtrend can continue;
- And at last, once prices, volume and open interest are all declining, then this downtrend is losing steam and that we might be observing a bottom because the market momentum slows.
Related: Bank Nifty OI.