Why can open interest reveal the next market movement?
Open interest is the number of contracts open in the market – whether buying or selling – and it is an indicator that reveals the strength of liquidity and the movement of speculators.
If open interest suddenly increases with rising prices:
This means that people are entering to buy aggressively… a price breakout may happen soon.
If open interest is increasing while prices are falling:
Beware! This could be a trap for speculators or the beginning of a strong correction.
If open interest is decreasing:
This means that people are exiting the market, indicating a general indecision.
Technical analysis is not enough… keep an eye on open interest funding, as it reveals market intentions.
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