Why Open Interest Matters More Than Volume for Trend Quality
Most beginners obsess over volume, but volume alone doesn’t tell you a damn thing about whether a trend is real. Open interest does. Open interest shows you whether money is actually entering or leaving the market, and that’s what determines whether a trend has staying power or if it’s just noise.
What Open Interest Really Measures
Open interest counts the number of active, outstanding futures contracts. If open interest is rising, more traders are committing capital. If open interest is falling, positions are being closed out.
- Rising OI = new money entering
- Falling OI = positions unwinding
- Flat OI = churn, not commitment
For clarity on how trades settle daily, check mark-to-market explained.
Volume Misleads Traders
Volume is just activity. Two traders can close positions and generate huge volume without creating a single new contract. That’s why big volume spikes can mean nothing.
| Scenario | Volume | Open Interest | Meaning |
|---|---|---|---|
| Two traders open new positions | High | High | New money, trend support |
| Two traders close positions | High | Low | Exit, not strength |
| Short-term churn | High | Flat | Noise |
Open Interest During Trend Moves
If you want to know whether a trend is real, look at OI:
- Uptrend + rising OI: strong long participation
- Uptrend + falling OI: shorts covering, not real strength
- Downtrend + rising OI: strong short participation
- Downtrend + falling OI: longs puking, not trend continuation
This ties directly into market structure, because OI confirms which side is in control.
The Bottom Line
Volume shows you activity. Open interest shows you commitment. If you want to judge trend quality, always prioritize open interest over raw volume spikes.