Open interest is the best tool to tell which direction traders are speculating in market, it may be stock future or index future, applicable in both. First of all we will discuss four golden rules about open interest which every F&O trader should follow strictly:
If Nifty / Stock trades up and open interest up then long positions were added.
If Nifty / Stock trades down and open interest up then short position were added.
If Nifty / Stock trades up and open interest goes down then short positions were covered.
If Nifty / Stock trades down and open interest goes down then long positions were covered.
The above rules can be used this way, today nifty future is trading near resistance level, Nifty future is trading down but total open interest added 15 lakh shares i.e. open interest up, so trader can conclude short positions in nifty future were added today, hence more traders are betting on the short side of market today and expecting market to fall in coming days. Some stocks that had huge change in open interest today, reliance stock was down open interest up, reliance futures added short positions today; Infosys stock trading up total open interest down, Infosys shed short positions from its total open interest; ICICI Bank stock down, open interest up, fresh short positions were added on ICICIBANK future. Sunpharma stock trading up, open interest also up, hence sunpharma futures added fresh long positions in open interest.
About Bhaveek PatelBhaveek Patel is one of the most successful traders, technical analyst, and investor, his areas of interest include stock market, forex, and gold trading. Apart from this, he is often seen in the golf course. He is having more than 10 years of experience in trading, had placed his first order on 19 June 2006 with IndiaInfoline.
How can we say short positions were added
How can we say short positions were added, if one is buying other is selling, this is a zero sum game. An open interest is sum of buy plus sell position. Or do you mean here that like nifty is @ 8800 and open interest is being built up in 8000 put so short positions and if 8800 or 8900 call then long positions.