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How to use open interest for intraday trading?

Decisions are made within a blink of an eye when the context is about intraday trading. So, it’s understandable for traders to count on every single second. The use of the right strategies and tools can make a significant difference. On that note, the open interest intraday trading indicator is a valuable methodology for traders to take complete advantage of this trading world.

So, are you new to intraday trading? It might be the right time to consider using open interest before the scenarios go out of your hand. If you are new to this intraday trading world, this post guides you through this concept.

Intraday trading: in a nutshell –

As the name suggests, it describes trading that occurs daily. It’s an intriguing strategy that helps you generate profits from the assets’ price movements. It might be a lucrative option, but it comes with its share of risks. So, it’s crucial to implement strategies that help predict the price movements while participating in such trading. That way, you can also reduce the chances of loss. 

It’s a trading opportunity that involves both buying and selling shares within a given day. So, traders might end up with massive losses if the market does not move in their favour. 

An introduction to open interest and its importance in the share market

Compared to volume, which indicates the number of contracts traded during a period, open interest includes sellers and buyers. It offers an all-encompassing picture of the market sentiment. Open interest is just not considered a statistic.

When combined, trading volume and open interest can offer insight into a specific option’s demand, liquidity, and price movements. 

It’s also an indicator of price trends and market sentiment. Suppose the open interest in the share market is high. In such cases, OI signifies a clear market outlook. Contrary to this, a reduced OI suggests that the prevailing trend might have negative impacts. 

OI can identify the trend confirmations and reversals. Suppose the market experiences an uptrend, and the OI increases at lightning speed. That indicates the trend will continue. The divergence between open interest and price movement may indicate a reversal. 

Calculating open interest – steps and tips to consider

To understand how open interest is calculated, you must consider an example. Suppose two traders have established fresh positions, where one is the buyer, and another is the seller. OI will increase by a single contract that reflects the money flowing into the share market. 

On the contrary, suppose two traders are closing their existing positions as the old buyer and old seller. Then, the OI will decrease by a single contract. It indicates that the money flows out of the share market. 

If the old trader transfers the position to the new trader, the amount of OI will be unaffected. So, it keeps the money unchanged within the market. 

Analysing open interest – things to consider

Another thing you should understand is analysing OI. So, how do you analyse intraday trade using open interest? Given below are the key things to consider for intraday trading analysis:

Reversal indicators

Intraday traders and investors can use OI to detect market reversals. When the OI declines after an uptrend, it might be because the trend is losing steam.

Trend confirmation

OI might serve as the confirming parameter that evaluates the price trends. For example, suppose the price of the stock is increasing. In such cases, the OI will also rise. It basically reinforces the upward trend’s strength. 

Market sentiment

OI can also help gauge the market sentiment. A high OI with rising prices indicates a bullish sentiment. On the other hand, OI with falling prices can indicate a downward trend. 

Key parameters to consider while using OI indicator

You may consider the following strategies to make the most of OI in intraday trading:

Confirming breakouts

Suppose the stock price breaks out from the resistance level. In such circumstances, you must check whether the OI is increasing or not. A rise in the OI and a breakout may indicate that there’s a higher potential for trend continuation. 

Divergence analysis

You must look for divergences between the OI trends and prices. When the price makes higher highs, the OI will decline. It might indicate a reversal.

Options trading

Monitoring OI becomes an important consideration for intraday traders who deal in options. Changes in the OI for specified options contracts may offer insights into where you should position your money.

Wrapping up

Thus, implementing open interest analysis can potentially improve intraday trading decision-making. While you become more familiar with the OI strategies, you can discern valuable trends and patterns. All you need is to remember that OI is just a single piece of the whole process. You should use it with other fundamental indicators for a strategic approach to intraday trading.

So, now that you understand how to use open interest for intraday trading, it’s time to check a few FAQs to understand open interests better.


Is open interest valuable for intraday trading?

Yes, OI or open interest is helpful for intraday trading. It offers an understanding of the market sentiment depending on how many open contracts are there. Also, it also offers insight into the resistance levels and probable price changes. It helps you make a well-informed decision by identifying your trading opportunities in the share market. 

Does open interest affect markets?

If the OI increases, it may indicate the influx of new capital entering the share market. That influx of funds indicates that the trend will persist eventually. Contrary to this, if the open interest decreases, it may signal the market is facing liquidation with more investors leaving the market.

What’s an effective tactic to pursue intraday trading?

There’s nothing called the best intraday trading strategy. It might depend on an individual’s trading style and preferences. However, you can achieve the best result by including OI in your intraday trading. Such a move increases your overall trading success, specifically if combined with technical understanding and support. 

Is there any impact of open interest in options trading?

OI is how many open positions are there in options contracts. So they can offer an understanding of the demand, liquidity, and other price movements. The greater the OI and volume, the more efficient the pricing and better liquidity. 

Is OI a good indicator?

OI measures the active contracts in the derivatives market. It’s the most valuable tool for determining the investor’s interest in any option. It also helps assess liquidity better. However, one should note that open interests can’t anticipate any price action. 

Can open interest be zero?

If the open interest of a specific price becomes zero, it indicates that the traders exhibit minimum interest in selling or buying contracts at a specified strike price.

How often is OI updated?

OI is subject to any update only after all the trades are completed for a specific trading date during the overnight processing. The updated data might become accessible the next morning. 

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