Volume and Open Interest Analysis


So, far in our previous posts we have limited our self to price action with some reference to volume but with this post we are transforming our analysis to third dimension by combining the concepts of volume, price and open interest. We will start with what is volume and open interest and later on move to the analysis and interpretation, all in a simple and to the point manner.

To start with volume as we already know is nothing but number of the number of stocks traded in the period under consideration. If we are checking daily charts the volumes will represent number of stocks traded in a day, on weekly chart it represents number of stocks traded in the week & so on. While volume have relevance to all markets Open Interest has relevance in futures and options market only. Open interest can be defined as the total number of outstanding contracts at the end of the day. Open Interest represent total number of unliquidated longs or shorts not the sum of both. It is the number of contracts, each of which have a buyer and seller which combine to form one contract.

Analysis of Volume and Open Interest:



1) The table above explains it clearly. If the price of a stock is rising and the volumes and open interest is rising then it signifies that with the rise in price new contracts are being added up in the market expecting the stock to rise further. Hence, more upside will be there.

2) If the open interest and volume is falling with rise in price then it means traders are booking profits and squaring off their contracts hence the trend is weak.

3) If with fall in price of stock the volume and open interest is rising then it means traders are expecting the downside to continue further and hence they are adding more positions on downsides. So, the signal is bearish and downside will continue

4) And finally if with falling price the open interest and volume is also declining then one may expect a trend reversal soon as it shows the contracts are being squared of of declines.


For filtering the data relating to increase or decrease in volumes and open interest you can simply go to following link of moneycontrol and choose your choice from the dropdown:

























To summarize,

1) Go long if volume and open interest are rising with rise in price
2) Go Short if volume and open interest are falling with rise in price
3) Go long if volume and open interest are falling with fall in price
4) Go short if volume and open interest are rising with fall in price




Hope I was clear with the stuff, queries/questions can be asked in the comments

Happy Trading
The Multiplier


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7 comments

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SauriN PateL
AUTHOR
June 9, 2015 at 10:12 PM delete

Please advise on skm eggs for long term. .

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June 10, 2015 at 7:55 PM delete

for long term its fine for short term avoid

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anujcool
AUTHOR
June 10, 2015 at 8:05 PM delete

Hey Abhishek

Can we add Rupa at current levels .. Considering after forming a base it gave a rally and now a pull back.. What's ur take .... Also pls advice on Dish tv .. Seems a turnaround story with good brand

Thanks
Anuj

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June 10, 2015 at 11:09 PM delete

wait for dips in both rupa and dish tv regards.......

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vinay tej
AUTHOR
June 11, 2015 at 11:14 PM delete

hi abhi,, what is "deliverable quantity" in shares?pls explain

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June 12, 2015 at 8:33 AM delete

the total number of shares which are not sold on the same day,,,,,,,,,,,,,, suppose 1000 shares are bought on a day out of which 500 are squarred off on the same day and rest are taken in delivery. So, deliverable qty here is 500 and %age is 50. Hope u got it

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