open interest (simplified): a thread 🧵

open interest (simplified):

a thread 🧵

open interest vs price:

price ↑ with positive OI: New longs pushing price up
price ↑ with negative OI: Shorts getting squeezed

price ↓ with positive OI: New shorts pushing price up
price ↓ with negative OI: Longs getting squeezed

when new positions, whether long or short, drive price, they add the dynamic that if pushed offside, price can squeeze in the opposite direction.

example - new shorts pushing price ↓

early positions:

positions opening too early, can be a good reason for trend continuation, hence I will not fade a move prematurely if oi rises too quickly.

when new positions open too eagerly it creates new stops either above or below the continuation pivot.

example ↓

trapped traders:

the term "trapped traders" is often misused.

In my view, it refers only to new positions, where increasing open interest enters the market with those new traders being caught offside.

trapped traders example ↓

stops hunts & failed auctions:

stop hunts - about much quicker sfp style reaction where there the majority of the sfp is stops being hit (open interest declining).

failed auctions - more prone to increases in open interest, as it traps a lot more breakout traders than a regular sfp would.

failed auction example ↓

open interest tools/indicators:

I primarily will use Exocharts for monitoring open interest & aggregated orderflow heading into any of my key levels.

I also use Velo data as an alternative sometimes.

velo data settings ↓

thanks for reading, hope you found this valuable, all likes are appreciated.

let me know if you have any questions or specific topics you want covered, ill do my best to get through them all.