A new analysis for Trading Nifty Future, traders must know what is relation between open interest and trading volume. Today I will explain this with a tutorial, now for open interest you can refer to open interest article. Once you are clear with open interest we will continue with its relation to trading volume.
How is volume important?
Now according to Dow Theory, when ever markets start to build up trends volume is highly watched as it directly reflects traders (speculators) and investors participation in the market. This move continues till we see fading of the current trend or when there is some unexpected change in fundamentals. In technical analysis trading volume always precedes price of underlying, so looking at these volumes one can predict that trend is weakening and may reverse. For trading with volume you must always remember these points:
- When volume is high – Trend is likely to continue.
- When volume is low – Trend may reverse / Pullback.
Now let me show you how you can relate trading volume, open interest and price action. For this you need to have your concept of open interest clear.
Follow the cheat sheet to get clear idea of open interest, volume and price action:
|Volume||Open Interest||Price Action||Conclusion|
|Falling||Falling||Rising||Market Loosing Strength|
|Falling||Falling||Falling||Market Gaining Strength|