Been trading for a while now but still trying to understand how open interest actually impacts market confidence.
Sometimes I see high open interest and think it means strong market sentiment. But then other times the market moves completely opposite to what I expected.
Does anyone else struggle with reading these signals correctly? Feel like I’m missing something important here.
High open interest indicates active positions. Focus on the direction of price movement. Rising OI with price is bullish. Rising OI with falling price is bearish.
Open interest alone does not indicate price direction. It should be analyzed with volume and price action. If open interest rises alongside price, it shows confidence in the trend. However, high open interest could indicate hedging or large players entering positions. A decline in open interest during price swings suggests that participants are exiting, indicating that the price move may not hold.
Tracking OI daily improves my market read. Last year I made 23% profit doing this.
Got burned hard on Apple options last month because of high open interest. I thought it meant bullish sentiment but the price tanked 12% the next day.
Turns out open interest just shows activity - doesn’t tell you which way it’s going. Could be hedging, profit taking, whatever. Now I look at it with volume and price action instead of using it alone.
Expensive lesson but I learned it.
Open interest shows commitment, not direction. High numbers usually indicate big players hedging against expected moves. Tracking changes over a few days reveals the real information. When open interest builds alongside price movement, it indicates confidence. Sudden spikes suggest something significant is coming, but direction remains uncertain until it unfolds.