Uh, okay, one more cautionary note: There is often a dramatic increase in volume at market tops or bottoms. Therefore, volume can be a useful indicator to help detect market reversals, significant changes in direction, up or down. Just keep an eye out for that.
All right then — go trade, make lots of money, have fun. Jack Maverick is a writer and forex trader.
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How to Use Open Interest for Intraday Trading: 3 Key Strategies that Give you an Edge
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Search Our Site Search for:. Does VOI confirm the trend or suggest a change in trend? The VOI data creates a lot of questions but not many simple answers to those questions. The histogram vertical lines represent the volume on a daily basis, and the line which spans the chart represents the open interest.
Traditionally, traders have used the rules listed below for volume analysis. At first, it appears these trading rules are in conflict. Actually, they imply very similar market conditions.
Volume and open interest information is often a quite useful indicator, especially when the trading volume and open interest deviate from expected patterns. This includes contra-seasonal moves, volume patterns versus chart patterns, and divergence. You can use volume and open interest to determine market action.
You must watch for divergence between price direction and volume. For instance, if the market makes new highs while volume falls short of the previous high, it implies the market is getting weaker. Evidence of such action: August 3, , was a volatile day — it came on the back of a Fed announcement, already weakish markets and most importantly, a close way below the DMA with a gap down which then we recovered from. We have presented below some charts, selected randomly, to show how the price action evolved on this day , using 1 hour charts, just to illustrate the principles: CHART 1: HDFC Bank faces resistance at the Max Call level , then fluctuates for some time around its Max Pain Area — before breaking down and hitting the Max Put OI level and then recovering from there after spending some time consolidating.
How to Use Options Open Interest Data to Find Trading Range of Nifty Future
There were two clear trades for a trader : 1 The minute the first break towards max pain came from the Call OI levels, and the traders indicators flashed red, one would have been short with an SL in the Max Pain area and when the max pain levels broke, it means the Put OI could have been next target. In Conclusion Intraday traders all have their own styles and preferences and often look at markets in their own unique ways- and often look down upon inferences from the Derivatives markets. Post navigation Bullish on Gold? Buy Sovereign Gold Bonds! International Mutual Funds: Have you diversified?