Relationship Between Open Interest And Price

October 1, 2020 Technical Analysis 2 min read
Price and Open interest – Do they ever lie?

There is an old saying that life is like a game of chess. If we know our opponent’s game, our chances of winning are only 50% (because we do not know whether our opponent knows our game or not). This is true even in case of our favorite market – the stock market.

Market Rises after Stop Loss Triggers

Many times we have observed that based on technical indicators we put a stop loss and the market rises just after the stop loss is triggered. Have we ever thought why it is so? There is always a fight between bulls and bears and both sides have read the books on technical analysis and they try to mislead each other.

Let us discuss an interesting trading strategy known to be adopted by institutions and big operators.

Trading Account

Trading Strategy (Open Interest and Price)

As per most text books there is an established principle that if the price rises with rise in open interest the market is bullish. However, there is a lacuna in this information. In case of a calendar spread transaction i.e. buy near month future and sell far month future, usually the open interest of the both the position is counted. There will be an increase in the open interest but this could be misleading.

In the May 2013 expiry the same strategy was adopted by big players. Because of this reason there was 2.6% price rise in the week ending on 30th May 13 (5 days) but 3.4% fall in next three days of new expiry. It was because of this strategy adopted by big players.

Also Read : Markets from an Analyst’s eye

Trading Decisions based on Price and Open Interest Analysis!

So if your trading decisions are based on price and open interest analysis, please be careful and study month wise open interest too.


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  • Trade Smart Online says:

    Hello Suresh,
    We are sorry you felt this way. Kindly let us know the issue that you are facing. We shall try our maximum to provide the best possible service.

  • Suresg says:

    One of # 1, 420 cheaters are trade smart, don’t fall into ditch. Charles chobraj is nothing in front of them. Bombay red light area are far far better than them. They fool us by sweet talks, then lure u by trap and blackmailing. No were in India will seek for GPS, but this bas_ards are seeking if they are born to me. Not even a single staff are born to genuine in this firm.




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