In F&O Market Trading Open Interest (OI) plays a significant role in making decisions in intraday trading as well as initiate a contract. Open Interest (OI) is a number that tells you how many futures (or Options) contracts are currently outstanding (open) in the market. Open interest reflects total long positions or total short position.
Open interest goes up or down based on how many new traders are entering the market and how many old traders are leaving. The total number held by buyers or sold short by sellers on any given day. The open interest number gives you the total number of longs and the total number of shorts.
Rules for trading with open interest:
With the help of Open interest data, we can see positions that traders are making in futures and options stocks.
Long Built up => It means people are taking positions assuming the price will go up. This is marked by an increase in open interest and an increase in price
Short Built Up => It means people are taking short positions, assuming the price will go down. This is usually characterized by an increase in open interest and a fall in price.
Long unwinding => This shows Long positions are now getting exhausted and people are starting to book profits, assuming the rally is about to over
Short covering => Short positions are getting decreased and people are booking profits and expecting reversal.
Usually, this is represented by an increase in price and a fall in open interest Combined with volumes, this can serve as an important indicator in selecting stocks for intraday or short-term
Usually, this is represented by an increase in price and a fall in open interest Combined with volumes, this can serve as an important indicator in selecting stocks for intraday or short-term
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