Trading in futures and options requires knowledge and experience. Profits from trading in the F&O market can be made with the application of technical analysis. Chart reading, graph reading, open interest, etc. can help in finding the market trend also. In this article, you will learn the analysis of the highest open interest to find the market trend. Let us begin by learning what is open interest & its meaning?
Meaning of Open Interest
Open Interest means the total number of outstanding or open contracts helped by the market participants at a given point in time. By looking at the open interest you can identify the types of stock trading also. Open interest is an important tool for those who trade in futures and options. The open interest or OI changes every day on the basis of outstanding contracts. Let us now learn about the basic Open Interest Analysis.
Basic Open Interest Analysis
- When the price of the stock is going up and because of that open interest is increasing, it means that the stock is strong and it is in bullish mode. The rise in the open interest suggests that the uptrend will continue in the coming trading sessions.
- When the price of the stock is going up and along with that open interest is decreasing, it means that the stock is weakening and it is in moderately bullish mode. The fall in the open interest suggests that the uptrend will weaken in the coming trading sessions.
- When the price of the stock is going down and because of that open interest is decreasing, it means that the stock is in moderately bullish mode. The fall in the open interest suggests that the downward trend will continue in the coming trading sessions.
- When the price of the stock is decreasing and along with that open interest is increasing, it means that the stock is weak and it is in bearish mode. The rise in the open interest suggests that the downtrend will continue in the coming trading sessions.
How to find the highest Open Interest?
There are various sources from where you can find the highest open interest. However, the most reliable source to find the highest open interest is the website of the National Stock Exchange. The data on the website is updated at the end of the day (EOD).
Conclusion
Open interest analysis is an important tool along with technical analysis to determine the market trend of stocks. For the stocks that are part of the F&O segment, open interest is a good indication of the market trend. NTA® is one of the leading academies in imparting stock market education.
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[ Also Check: Stock Market Terminology ]