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#12
7th June 2005, 03:27 PM
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Re: Trendline Analysis and Open Interest
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#13
6th February 2007, 04:08 PM
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Re: Trendline Analysis and Open Interest
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Although this thread is a old one and not active, I've got one question. The author tells that greater the rise in OI during consolidation, greater the potential for the subsequent move. How? Can anyone please explain it? Thanks, Praveen.
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#14
23rd February 2007, 07:19 AM
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Re: Trendline Analysis and Open Interest
There is one thing I dont understand. Maybe you understand this. It is open
interest. This is the number of futures contract that are still held by market participants at the end of each trading day. Surely open interest should stay the same every day. Futures trading is a zero sum game and futures contracts can only exchange hands between participants rather than be created out of thin air. My understanding is that each futrues exchange eg LIFFE or CBOT have a given no of futures contracts eg 1,000,000 contracts of sugar or oil or cocoa and these contracts are swapped many times throughout the day by market participants contributing to volume. How can open interest increase - where are these new contracts coming from? If I hold 10 contracts today and sell them tomorrow - I have to sell them to someone else who is holding them so open interest stays the same. Its like passing a torch - I can pass it to you, you can pass it to Mr. X etc. But whichever day you look at it - someone will have the torch and there will only be 1 torch. Here with open interest people are saying on Monday there will be 1 torch, on Tuesday 3 torches etc. This is only possible if someone is increasing the liquidity of the exchange by creating more futures contracts available to public if they notice there is increased market participants. Do you understand what I mean?
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