Forex

A 10 percent change in open interest deserves serious attention, while a 25
percent change often gives major trading messages. The meaning of rising,
falling, or flat open interest depends on whether prices are rallying, falling,
or flat at the time of change in open interest.
1. When open interest rises during a rally, it confirms the uptrend and
gives a signal that it is safe to add to long positions. It shows that more short
sellers are coming into the market. When they bail out, their
short covering is likely to push the rally higher.
2. When open interest rises while prices fall, it shows that bottom-pickers
are active in the market. It is safe to sell short because these bargain
hunters are likely to push prices lower when they throw in the
towel.
3. When open interest rises while prices are in a trading range, it is a
bearish sign. Commercial hedgers are more likely to sell short than
speculators. A sharp increase in open interest while prices are flat
shows that savvy hedgers are probably shorting the market.
4. When open interest falls sharply while prices are in a trading range, it
identifies short covering by major commercial interests and gives a
buy signal. When commercials start covering shorts, they show that
they expect the market to rise.
5. When open interest falls during a rally, it shows that both winners and
losers are getting "cold feet." Longs are taking their profits, and shorts
are covering. Markets discount the future, and a trend that is accepted
by the majority is ready to reverse. If open interest falls during a rally,
sell and get ready to sell short.
6. When open interest falls during a decline, it shows that shorts are covering
and buyers are taking their losses and bailing out. If open interest
falls during a slide, cover shorts and get ready to buy.
7. When open interest goes flat during a rally, it warns that the uptrend is
getting old and the best gains have already been made. This gives you
a signal to tighten stops on long positions and avoid new buying.
When open interest goes flat during a decline, it warns you that the
downtrend is mature and it is best to tighten stops on short positions.
Flat open interest in a trading range does not contribute any new information.