A Confirming Indicator
An increase in open interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal.
The relationship between the prevailing price trend and open interest can be summarized by the following table:
| Price | Open Interest | Interpretation |
|---|---|---|
| Rising | Rising | Market is Strong |
| Rising | Falling | Market is Weakening |
| Falling | Rising | Market is Weak |
| Falling | Falling | Market is Strengthening |
Read more about this topic: Open Interest, Open Interest