How to Read Open Interest (OI) — And Use It With CVD to Catch Moves Early
$BTC OI spikes are usual and necessary before any big move. Most people see the price. Few understand what is building underneath.
Here's what Open Interest actually tells you and how to combine it with CVD to read moves before they happen.
What is OI?
Open Interest = the total number of open futures contracts in the market.
— OI goes up when new positions are opened
— OI goes down when positions are closed or liquidated
It tells you how much risk is currently sitting in the market.
OI + Price combinations
— OI rising + price rising = new longs opening. Move has conviction
— OI falling + price falling = longs getting liquidated or closed. Can reverse fast once the flush is done
Same logic applies in both directions. OI tells you whether the market is adding risk or removing it.
OI + CVD: the real signal
OI tells you how much risk is in the market. Futures CVD tells you who is driving it.
Four scenarios:
1) OI rising + CVD rising = new longs opening
2) OI rising + CVD falling = new shorts opening
3) OI falling + CVD rising = shorts getting squeezed or liquidated
4) OI falling + CVD falling = longs getting squeezed or liquidated
Funding rates bonus:
— Funding positive = longs paying shorts. Market overleveraged long
— Funding negative = shorts paying longs. Market overleveraged short
— High OI + positive funding = crowded long. Vulnerable to a flush
— High OI + negative funding = crowded short. Vulnerable to a squeeze
OI won't give you every answer. But combined with CVD and key levels, it tells you how much fuel is in the market and who's holding the match.
That's the edge.
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