🌋 Open Interest – The market’s pressure
Now imagine the market is a volcano.
On the surface, everything may seem calm. Yet underground, pressure can gradually increase until it causes a huge explosion… or, on the contrary, fade without consequence.
Open Interest measures precisely that pressure.
It indicates how many contracts are currently open on the derivatives market, meaning how many traders still have an active position.
🎯 What is it used for?
Open Interest makes it possible to know whether new traders are entering the market or whether, on the contrary, they are leaving it.
- 🟢 Rising Open Interest: new positions are being opened, pressure increases.
- 🔴 Falling Open Interest: positions are being closed, pressure decreases.
Very important: it does not say whether the market will rise or fall.
It simply indicates the amount of accumulated energy.
🧠 How should it be interpreted?
🟢 Price rising + Open Interest rising
New buyers and sellers arrive on the market and take positions.
The move is generally considered stronger, because it attracts new participants.
🔴 Price falling + Open Interest rising
Many new positions are also opened, but this time in a bearish context.
Pressure increases and the move can continue to gain momentum.
⚠️ Price rising + Open Interest falling
The rise is fueled by traders closing their short positions (short squeeze) rather than by new buyers.
The move can quickly lose strength.
⚠️ Price falling + Open Interest falling
Positions are gradually closing.
The decline often loses intensity and the market may enter a stabilization phase or prepare a rebound.
🌋 Why does Yapuka use the volcano image?
Because Open Interest perfectly represents an accumulation of pressure.
- 🌋 Little pressure → calm market.
- 🌋 Pressure rises → the market becomes more sensitive.
- 🌋 Very high pressure → the risk of a violent move increases.
The volcano does not tell us in which direction the explosion will happen.
It simply tells us that something important is being prepared.
🤝 What should it be combined with?
⛽ Money Flow
Money Flow indicates whether money is entering or leaving the market.
Open Interest indicates whether new positions are being created.
Example:
- Positive Money Flow
- Rising Open Interest
➡️ New capital is arriving and new traders are taking positions. The move gains credibility.
Conversely:
- Weak Money Flow
- Open Interest exploding
➡️ A lot of speculation, but little real new capital. The market becomes more fragile.
📊 Funding Rate
Funding makes it possible to know which side the majority of traders is positioned on.
If:
- Open Interest is very high
- Funding is extremely positive
➡️ Many traders are buyers with leverage.
The slightest bearish move can then trigger a cascade of liquidations.
🔥 Liquidations
When Open Interest reaches very high levels, a simple price variation can trigger a chain reaction.
Thousands of positions are liquidated, which accelerates the move even further.
It is often during these periods that the market’s strongest impulses are observed.
💡 Yapuka’s advice
Open Interest never predicts the direction of the market.
It simply measures the pressure accumulating beneath the surface.
The greater this pressure is, the more essential it becomes to monitor other indicators such as Money Flow, Funding, Liquidations or Supports and Resistances.
By combining this information, you obtain a much clearer reading of the market and avoid being surprised by an explosion… or by a volcano that simply ends up falling asleep again.