Open Interest
Open interest represents the total number of open contracts on a security. In crypto, this generally means how many positions are open on perpetuals/futures markets.
Many analysts believe volume precedes price, so increasing volume and open interest indicate continuation of current trends. If volume and open interest fall, the theory holds that momentum behind the current movement is slowing, and you will soon see a reversal.
Quick tips
- Uptrend
- Rising OI/VOL → new money in the market, bullish
- Decreasing OI/VOL → short sellers covering positions causing a rally, bearish
- Downtrend
- Rising OI/VOL → aggressive new short-selling, continuation. bearish
- Declining OI/VOL → longers liquidating positions. Sellers will close positions and reversal will happen. bullish
Criticisms
- Many analysts believe that momentum is not a very valuable indicator.
- Excessive short interest is seen by many as a bullish sign
- Naive market participants generally start shorting after a significant downtrend. When the market recovers, they have to close (declining OI/VOL), signaling a short squeeze.
- Generally, momentum investors are not nearly as good at predicting trend reversals as contrarian investment