Volume & Open Interest Explained | with English Subtitles - YouTube

So, today we are going to discuss about an important topic ” Volume & Open Interest”

Concept amongst most of the people regarding V & OI is when the volume increases go for buy…..If the open interest increases we should go for buy / sell

There is a myth behind this. So, in this video we are going to see in-depth analysis of “V & OI”. Let's see how it works....

Before going deep into the analysis, we must understand the meaning of “V&OI”?

Total number of transactions between the buyer and seller is called VOLUME

And whereas, A total number of outstanding contracts in an exchange is called as OPEN INTEREST

Before entering into this subject, let me explain you about rules of Open Interest

Rule 1: NS + NB = “POSITIVE” (New Seller + New Buyer)

Rule 2: NB + OS = “NO CHANGE” (New Buyer + Old Seller)

Rule 3: OS + OB = “NEGATIVE” (New Buyer + Old Seller)

Now, I will explain you how does “Open Interest” formula works with an example

So, will take 3 names as example to explain the open interest 1.Kishore 2.Deepak 3.Gokul

Consider 1st column as Volume and respectively the 2nd column as Open interest

Before applying this rule, let me ask you a question …… Who is entering into market first? Buyer or Seller?

(after a pause) Let me clarify you on that

First thing in market, Open Interest comes under Future and Options Contracts (F&O)

the question is who is creating a contract? It is always Sellers. Though Buyers and Sellers are in the market. Contract creation is always done by Sellers

Next will see how it works with an example. As already said seller comes first in the market.

Consider that Kishore wants to trade 5 lots in a script. Kishore will be selling 5 contract. Minus 5 (-5) represents selling

Now, Deepak has bought 5 contracts from Kishore

As I told earlier, Volume is a transaction between a Buyer and a Seller

In this how may transaction has taken place ? Deepak has bought 5 contracts, which has been sold by Kishore.

Normally people calculate the no.of transaction to be 10. 5 Sold + 5 Bought = 10 transaction (which is wrong)

Let say, I’m having Rs. 100/- and giving that Rs.100 to you. Does it mean Rs.100 + Rs.100 = Rs.200, absolutely NO (Total transaction happened is only Rs.100)

100 rs is the transaction that happened in the market

Likewise, Kishore sold 5 contracts and the same contracts has been bought by Deepak. So, the volume is 5 (+5)

As I told earlier, in each step Volume increases based on the transaction between Buyer and Seller

Whereas, to find out Open Interest, we have to follow certain rules

The first Rule is (NS+NB=Positive)

Now, Kishore has created a 1st Contract, So he is considered as New Seller

Deepak (New Buyer) bought the same contract which is sold by Kishore

Kishore (NS) + Deepak (NB) = Positive. So, the Open Interest is “+5”

In next transaction, Let’s consider Deepak wants to close his position, since his trades are in profit

Deepak wants to sell only 3 contracts out of 5 contract which is in profit

Now, the 3rd person Gokul buys 3 contracts , which is sold by Deepak

As I told earlier, volume increases in each stage, now the Volume increases to 3. Deepak Sold 3 contracts + Gokul Bought those 3 contracts, thus Volume is 3

So now, as per the open interest rule, Gokul is considered as New Buyer, because he is purchasing an order in the market for the first time

And whereas, now Deepak will be considered as OLD SELLER because Deepak is not creating a new contract

The contracts which Deepak has are the one which was created by Kishore (New Seller). In turn Deepak is selling the same contract to third person (Gokul) , which was sold to him earlier by Kishore

As I told earlier….P1.Kishore is a “New Seller” .. P2. Deepak bought P1.Kishore’s contract .. so, he(P2) is not a “New Seller”…. Again he (P2) selling the same contract.

What it represent means… after purchasing an order (P2. Deepak ) is in profit…now (P2)he is closing his trade. Again (P2) he is going to sell the contract. Then, it becomes a “New Contract”.

Where as, (P2)he is closing his trade…So (P2) becomes a “Old Seller”… P3. Gokul becomes a “New Buyer”, Rule No. 2 is applicable (New buyer + Old seller = No Change).

Then, what had happen there will be no change in the “Open Interest” in this particular trade.

And then, P3. Gokul is having 3 contracts. Now, assume that some how he made a profit…..now (P3)he is looking for square off his positions.

P3. Gokul bought the contract from (P2) …. So, now consider he wants sell his positions….now, (P3) also sold his 3 contracts which is purchased from P2.

Now, who is going purchase P3. Gokul 3 contract? Again P1. Kishore is buying this contract. (P3) totally sold his 3 contracts which is purchased from (P2).

P1. Kishore is a creator of 5 contract. (P1) First time he sell 5 contract out which now (P1) he is buying (P3) 3 contract that means (P1) is closing his position.

After closing (P1) 3 contract still 2 contract is pending in sell. Now, how many transaction has been done after closing their positions (P1) and (P3).

Whereas, P3. Gokul is a New Seller or Old Seller? Obiviously (P3) is an Old Seller…again Volume increases to (+3).

Why because, (P3) has not created a new contract… He just closed his contract which is purchased from (P2)… getting it….

(P3) closing his positions … so, he is an “Old Seller” …. Now, do you think P1. Kishore is a New buyer? Don’t get confuse … Let me explain…

The first thing is P1. Kishore sell the contract at first time…. so, he is New Seller. Now, (P1) is buying back his sold contract … so he is not a” New Buyer”.

Buying of a contract or selling of new contract is considered as New buyers and New sellers. Closing the Positions is not called as a New buyers and New sellers.

P1. Kishore sold 5 contract in Future. Now think that (P1) sold 5 contracts now, partially he is covering his position that is 3 Contract.

P1. Kishore is not buying a new contract. He is just closing his position. So, that is why P1. Kishore becomes an Old Buyer.

Now Volume increased again +3…… here , Now Rule No. 3 is applicable (Old seller + Old Buyer = “Negative”)Then open interest goes -3

Now the total transaction of Volume =8….. whereas, Open Interest = 2…..getting it..

The transaction between the buyer and seller is the reason for increasing the volume. Whereas, when its comes to an open interest it shows the reality.

How to find new buyers and new sellers are entering into the market or old buyers and sellers are making transaction in the market?…..We have to check at Open Interest.

Open interest increases & decreases. But what is the use of checking it ?

When open interest is in positive .. it represents TREND CONTINUATION.

When open interest has no change.... it represents market is in SIDEWAYS.

When open interest is in negative.... it represents TREND REVERSAL.

When OI is keep on increasing means ….it represents trend is going to continue…..

When OI doesn't change and remain stagnant. It means there are no New Buyer/Seller entering into market. So, market is in Sideways

When OI is in negative it means traders are trying to close their positions which automatically leads to MWPL (Market Wide Position Limit)

due to which we will have a Trend reversal in market

Before knowing the rules we think when OI increases market is in Uptrend… OI decrease market is in Downtrend.

But now as per the rule when OI increases it means Trend Continuation (which may either be Buy trend or Sell trend)

For example :- If the market is in buy trend and find the OI in positive, it means the buy trend will continue

like wise if the market is in downtrend and find the OI in positive, it means downtrend will continue.

When there are new sellers in the market and the market is in downtrend and OI to be positive, the market will still continue to be a downtrend

Trend continuation can either to Sell trend or Buy trend.

Trend reversal means when the market is in uptrend and at certain point if the OI is negative it means from there the market is going to be in downtrend

Whereas, OI represent to find out whether market is getting reversal from downtrend to uptrend. Do you think only with the help of OI we can trade! “NO” we cannot trade.

OI and Volume is to identify.. where the trend continuation where the trend reversal is going to happen.

We use Volume and Open Interest only for the purpose of where is the trend reversal and where is the trend continuation. Its not for trading.

If you know the trend, then only you can use the Volume and Open Interest analysis. So, how to know the trend…. that is purely trend analysis.

So, The first thing is, you must know that whether market is in uptrend or downtrend. when you know the trend then only you can use OI. When OI increase then trend is going to continue.

Market is in downtrend OI is also negative means trend reversal may occur…then only we can identify the trend… so, we need to know what is a trend in the market.

We are at “ TRADE ACHIEVER’S” we teach people why you should know Technical Analysis.. People think that only with the help of Volume & OI they can trade but It does’t work.

So, learn the proper way of Technical Analysis …. You cann’t trade only using Volume and OI.

I think after watching this video you got an idea… how does a market work… if you interested to learn Technical Analysis not only technical….

Apart from technical there will be more subject to learn. Trend is just to see the market path…. We need to know what is the right direction of trend. Where you are travelling.

For Example … Let’s think the bus is travelling from Chennai to Coimbatoor in-between there is stop ….. here, where you are catching bus is very necessary ….. whether you can catch the bus at koyambedu or thambaram or chengal pattu.

In case , you would like to join our course … if you want to become professional trader…. Our contact number is scroll below this vedio.

So, Coming week….. coming Saturday we are conducting full day technical analysis class in Chennai…… Next Thursday we are conducting full day class in Coimbatore.

Where I will be teaching you , all the stucks all volume and OI plus and all the 14 subjects of Technical Analysis and Fundamentals. Everything will be covering in one day theory and practical classes.

So, in case if you want, give a call to this number and you can register for .. so I think this video is very useful for you.

And I hope you got a clear picture about…. what is OI and what is volume … and how does OI form and how OI increase and decrease will happen.

So, thank you for watching and thank you very much for joining.. take care.