How do I analyse open interest?
Open Interest is a wonderful tool that helps you to understand the changes going on in the live market. If you can track the changes in OI, it will tell you about the upcoming movement.
I believe OI Analysis is better than the chart and other analysis as it gives time to understand and make changes accordingly. E.g
You have a flood on the other side of the wall and you wanted to know if it breaks the wall. Chart and indicators will indicate you once breakout happen - practically you will have very less or almost no time adjust yourself once breakout comes but when you analyze OI, it tells you much before the breakout coming - a small leakage can be detected and repair through OI because you have time.
There are four terms that you need to understand for OI Analysis
1. Long built-up - price goes up, oi goes up
2. Short built-up - price down, oi up
4. Short cover - price up, oi down
Once you understand these four build ups then you need to know that all share or indices move in the cycles. These two cycles are helpful for us
1. Long - long unwinding: bullish
2. Short - short cover: bearish
If you want to understand it completely you can follow this twitter thread and you can also watch is this recorded webinar on youtube.
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