Futures Trading With Volume Price Analysis and Open Interest
Volume is what drives the market. This indicates if there is increasing
demand for the supply in the market. Look closely at the trend of the volume.
This will help you determine if trend of the market will continue.
Volume is the number of contracts that traded during the day. It represents either the purchases or sales, but not both. The more activity on the floor the more volume there is. This can increase due to day trading or overnight trading. If volume does not increase or decrease then speculators feel the market will remain steady.
Volume usually remains steady in consolidation areas, usually at low price levels. If price moves out of a consolidation area with increased volume, then there is a good chance that the price move will be the beginning of a good move.
If price moves out of a consolidation area and volume does not increase, then there is a good chance that it is a false breakout and the price will fall back into the consolidation area.
If prices start to fall out of a consolidation area with increase volume it is significant. If prices start to rise out of a consolidation area with increased volume then it is significant.
If when price falls the volume starts to fall, then the market may be ready for a turn back up. If the volume increases when price falls back to a base, it means that traders are buying it as they think it is a bargain.
If volume increase when prices run up to a resistance area, it means traders are unloading it thinking price is too high. Volume also increases when the market runs into stops.
The floor traders often times run the market into these areas when they can. If the market has run up into stops and does not continue, then these is a good chance prices will fall back as it just got the weak shorts who had to put in close stops.
For a big trend to continue, the volume must continue to rise. Watch the volume closely as it will give you the clue to the market direction. Without increasing volume, prices will not continue to increase.
After a long advance in prices many times the volume increases dramatically because small speculators are jumping into the market near the top thinking that prices will continue up forever.
After a long decline in the market many times volume will dramatically increase because the public who have been long the market and loosing lots of money are finally giving up and throwing in the towel.
In this case the market will soon reverse as professional traders are buying the contracts from the small speculators.
When prices break out of a consolidation area and make their first advance and then decline, if the volume runs up and then declines it is bullish.
When prices break down out of a consolidation area and makes their first decline and then makes the first correction back up,if it decline is on heavy volume and the retracement back up is on declining volume then this is a good indication for a good move down.
Open interest is when there is a new buyer of a contract and a new seller. These two parties cross. The buyer buys and the seller sells making a complete transaction. The open interest then increases by 1 contract.
When prices increase with rising volume and open interest increases this is a further indication that the market will rise.
Having all three rise is very bullish.
If prices are rising, with rising volume and decreasing open interest, then it is a good indication that there is short covering in the market. These traders are liquidating their contracts to get out of the market. When this happens the market will not trend much further.
If prices are stable and open interest is rising there is a good indication that positions are being accumulated.
If prices are stable and open interest is stable, there is no indiction of any change of trend. Look for the market to break out of a consolidation range with rising open interest and volume to change this stable condition of the market.
If prices are stable and open interest is falling then there is a good indication that the market is loosing interest and the public is going elsewhere.
Volume is the number of contracts that traded during the day. It represents either the purchases or sales, but not both. The more activity on the floor the more volume there is. This can increase due to day trading or overnight trading. If volume does not increase or decrease then speculators feel the market will remain steady.
Volume usually remains steady in consolidation areas, usually at low price levels. If price moves out of a consolidation area with increased volume, then there is a good chance that the price move will be the beginning of a good move.
If price moves out of a consolidation area and volume does not increase, then there is a good chance that it is a false breakout and the price will fall back into the consolidation area.
If prices start to fall out of a consolidation area with increase volume it is significant. If prices start to rise out of a consolidation area with increased volume then it is significant.
If when price falls the volume starts to fall, then the market may be ready for a turn back up. If the volume increases when price falls back to a base, it means that traders are buying it as they think it is a bargain.
If volume increase when prices run up to a resistance area, it means traders are unloading it thinking price is too high. Volume also increases when the market runs into stops.
The floor traders often times run the market into these areas when they can. If the market has run up into stops and does not continue, then these is a good chance prices will fall back as it just got the weak shorts who had to put in close stops.
For a big trend to continue, the volume must continue to rise. Watch the volume closely as it will give you the clue to the market direction. Without increasing volume, prices will not continue to increase.
After a long advance in prices many times the volume increases dramatically because small speculators are jumping into the market near the top thinking that prices will continue up forever.
After a long decline in the market many times volume will dramatically increase because the public who have been long the market and loosing lots of money are finally giving up and throwing in the towel.
In this case the market will soon reverse as professional traders are buying the contracts from the small speculators.
When prices break out of a consolidation area and make their first advance and then decline, if the volume runs up and then declines it is bullish.
When prices break down out of a consolidation area and makes their first decline and then makes the first correction back up,if it decline is on heavy volume and the retracement back up is on declining volume then this is a good indication for a good move down.
Open interest is when there is a new buyer of a contract and a new seller. These two parties cross. The buyer buys and the seller sells making a complete transaction. The open interest then increases by 1 contract.
When prices increase with rising volume and open interest increases this is a further indication that the market will rise.
Having all three rise is very bullish.
If prices are rising, with rising volume and decreasing open interest, then it is a good indication that there is short covering in the market. These traders are liquidating their contracts to get out of the market. When this happens the market will not trend much further.
If prices are stable and open interest is rising there is a good indication that positions are being accumulated.
If prices are stable and open interest is stable, there is no indiction of any change of trend. Look for the market to break out of a consolidation range with rising open interest and volume to change this stable condition of the market.
If prices are stable and open interest is falling then there is a good indication that the market is loosing interest and the public is going elsewhere.
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