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Trading Volume And Open Interest
Author : Ahmad Hassam
As a trader, you should know the trading volume. Trading volume of a security tells you how heavily that security is being traded. A high trading volume is an indication that there are many buyers and sellers of that security and the current trend will continue. However, you have to combine volume analysis with technical indicators to figure out the meaning of the price action.
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.
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 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.
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.
Author's Resource Box
Mr. Ahmad Hassam has done Masters from Harvard. Get your FREE COPIES of the HVMM Ultimate Day Trading System and the Universal Risk & Money Management Tool just now! Turn $200 into $100K in just 3 months with this Penny Stock Trading FREE Report!
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Tags: trading volume, open interest in trading, trading, stock trading, stocks, investing, stock investing
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Submitted : 2010-03-15 Word Count : 1 Popularity: 92 Times Viewed: 7
