Open interest is a common indicator that technical analysts and traders use to verify market trends and trend reverses for futures and options markets. They are able to generate accurate future tips. However, open interest is the sum of all future and option contracts for a stock or security. Technical analysts place great importance on the combination of volume as well as open interest when performing share market trading. Open interest and volume are combined to show the total number and types of shares and contracts that change hands during a single trading day in stocks and commodities. Trading volume is dependent on how much trading occurs during a market session. The trading volume will be higher if there are more stocks traded in the market. Vice versa, a smaller number of stocks is better. Volume is a measure of the strength or stress that follows a price trend. If the volume is high, then the trend will continue and not reverse. If the stock price rises and the volume and open interest are high, then the market can be considered strong or bullish. If the price action is in a downtrend, and the open interest on declination is not broken up by new money entering the market, then it is a bearish market.
If the stock price drops with volume, and the open interest in the inclination is disrupted by new money entering the market, then the market can be considered weak or bearish. Technical analysts should consider new aggressive short selling in this situation. The market can be deemed bullish or strong if the open interest is declining and the stock price is also falling with low volume.
Every trade on the market exchange leaves an impression on the open interest level for the day. An increase in open interest means that new money is flowing into the market and that the current trend will continue. If the open interest falls, it is a sign that the market has closed and that the current price trend is over. A steady price of stock rise and stabilization of open interest are often signs that there is an end to a bull or uptrending market.