Interpreting open interest & volumes

ravikvr · #1 21st September 2006, 08:44 PM

Trading Wizheads,

Can you please clarify me the following

1. If the volumes are going down and the price of stock is going DOWN, what should be interpreted.
2. If the volumes are going down and the price of stock is going UP, what should be interpreted
3. How can Put Call Ratio data help in interpreting the market trend? Also what is the difference between PCR OI and PCR Vol

thanks
Ravi

These are the basics I am aware of

If volume is relatively high while the market is going up and remains relatively low during corrections, the inference is that the market is in a strong uptrend, which should continue.

If volume is high while the market is going down and relatively light during upward retracements, then the market is weak with a continuing downward trend likely.

If both open interest and prices are increasing, then new buyers are being brought into the market with a strong technical picture unfolding. Expect the uptrend to continue.

If on the other hand, open interest is increasing while prices decline, short sellers have the upper hand in a technically weak market. As open interest is growing while prices decline, buyers are obviously the more aggressive party.

In the event of open interest declining while prices are also slipping, liquidation by long positions is the implication, therefore suggesting a technically strong market overall. In other words, the market is strong as open interest declining suggests no new aggressive shorts, as this would entail an increase in open interest.

When open interest is declining and prices are increasing, short covering is the most likely cause suggesting that overall the market is weak - i.e. attracting new buyers would be required for a technically strong market and consequently open interest would rise.

Agilent · #2 21st September 2006, 10:49 PM

Read thru this thread fully (and don't miss the links in my posts) ... then come back if u still have doubts

http://www.traderji.com/futures/4592...-future-2.html

ravikvr · #3 22nd September 2006, 11:14 PM

Agilent,

Thanks for the link, has cleared all my questions except this one.

3. How can Put Call Ratio data help in interpreting the market trend? Also what is the difference between PCR OI and PCR Vol

thanks,
Ravi

Agilent · #4 23rd September 2006, 12:06 AM

Quote:

Originally Posted by ravikvr

Agilent,

Thanks for the link, has cleared all my questions except this one.

3. How can Put Call Ratio data help in interpreting the market trend? Also what is the difference between PCR OI and PCR Vol

thanks,
Ravi

What are these terms anyway . I know what is PCR and what is OI, but PCR OI? Likewise PCR Vol?

As for interpretation of PCR, stand by

AGILENT

Agilent · #5 23rd September 2006, 11:07 PM

Here's a link which will help
http://www.investopedia.com/ask/answ...tcallratio.asp

As I suspected, the main (not sole) use of the PCR is as a contrarian strategy, to build long positions when the ratio tends to rise too much, since a high PCR suggests an oversold market (which is bound to correct sooner or later).

Am I right guys /experts ?

AGILENT

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