📊 How to trade using Open Interest (OI)?

Many people focus on price but ignore OI — it is actually an important indicator for observing market bullish and bearish forces.

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🔎 OI Basics

OI = Total number of open contracts.

It can tell us:

If funds are entering or exiting

Changes in bullish and bearish sentiment

Potential breakout points in the market

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📈 4 Relationships Between OI and Price

1️⃣ Price rises + OI increases → Bulls enter, trend continuation likely

2️⃣ Price falls + OI increases → Bears enter, decline may accelerate

3️⃣ Price rises + OI decreases → Bears close positions, common "short squeeze"

4️⃣ Price falls + OI decreases → Bulls close positions, common "long squeeze"

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🛠️ Practical Applications

Confirm trend: Breakout + OI increases → New funds follow in, trend more credible

Identify false breakouts: Surge but OI does not increase → High risk of trapping longs

Capture liquidation points: Sharp price drop + OI decreases → Bulls liquidate, causing sell-off

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⚡ Summary

OI cannot be used alone; it is best combined with trading volume & funding rates.

By effectively utilizing OI, you can see clearly: Is this a trend opportunity or a "false move to cut the leeks."