Trading Volume And Open Interest
Trading volume of a security is a direct real time market sentiment indicator. A high trading volume is an indication that the current trend is likely to continue. Now, good volume analysis needs to be combined with other technical indicators in order to make a trading decision.
Now, volume figures are not available to currency traders in view of the over the counter unregulated nature of the currency market. However, volume figures are available to stocks and futures traders. The release of the volume figure in the futures market is delayed by one trading day.
As the futures contracts near the delivery month, volume increases. This increase in trading volume is good for traders and hedgers as it means better price discovery.
Limit days are the days in which a particular futures contract makes a big move in a short span of time. This move is usually backed by high volume. A limit up day when the market rises to its limit in a short span of time is a sign of strength. Limit down days are usually followed by trading collars.
Open interest is the number of open contracts of a security in the market during a given trading period. Open interest is particularly an important tool for futures traders. Volume data alone can be confusing. So as a trader, you need to use volume data in conjunction with technical indicators. This way, you can understand the signficance of trading volume change and the trend change. You should also understand how volume data is reported in the stock and the futures market.
Open interest only applies to futures and options contracts and not to stocks. Open interest is the number of contracts entered into during a specific period of time but have not been liquidated or settled.
Open interest is the total number of contracts of a particular security that is long or short. Open interest rises by one when a new buyer or a new seller enters the market and takes a position in a security. Charting open interest alongwith the price charts can be an important means of tracking a contract.
Article Source: FxTradingStock.com
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Mr. Ahmad Hassam has done Masters from Harvard University. Know this shocking Dow Futures secret that can make you rich. Download this very simple 1 Minute Forex Trading System FREE that makes money instantly anytime.
by: Ahmad Hassam
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Date: Wed, 17 Mar 2010
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