Use Open Interest to Measure Trend Strength

ninjatrader open interest trading platform

Open interest is defined as the total number of contracts for a particular futures instrument which are outstanding at a given time. According to David L. Scott in his book Wall Street Words, “A large open interest indicates more activity and liquidity for the contract.”

The term open interest most commonly refers to the futures and options markets, and is similar to the concept of outstanding shares in the stock market. Another way to think of open interest is the number of contracts held in open positions.

How Open Interest is Calculated

Open interest calculates the total number of open contracts long or short for a particular market. While each open transaction technically has both a buyer and a seller, only one side of the transaction is tallied to account for the “open” position.

For example, if there are only two participants in a given market, one with an open long position of 1 contract, and the other with an open short position of 1 contract, the open interest would be 2 contracts. That is, regardless of direction, open interest is the total quantity of all unclosed positions.

Open interest data is calculated once per day by the exchanges and is not provided in real-time.

Why is Open Interest Significant?

Open interest is used as a barometer of market activity. A high open interest means there are many traders with open positions, and in turn many eyes will be on the instrument in question.

As such, open interest is used as a measure of strength within a trend. For example, if open interest continues to increase during an uptrend, this may be an indication that the trend will continue. On the other hand, decreasing open interest during an uptrend could mean that a trend is weakening and a reversal could be around the corner.

Monitor Open Interest with the Market Analyzer

Watching open interest in the NinjaTrader platform is easy. The Market Analyzer provides a customizable interface to track the markets tick by tick based on your preferred conditions to quickly uncover trading opportunities.

open interest market analyzer ninjatrader platform trend

Within a Market Analyzer window, right click and select Columns, then find “Open interest” in the Available section. Next double click “Open interest” and then click OK.

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