PRICE, VOLUME, AND OPEN INTEREST

Price, volume, and open interest provide important information about the market for the technical analyst, and are used in many technical studies. Most charts show the open, high, low and close or settlement price. For day charts, the open and close represent the price at a particular time of the day. The low and high represent the lowest and highest prices recorded during the day, independent of time. They are a good indication of short-term support and resistance.

The volume is the number of contracts which trade during the time period. The open interest is the number of contracts outstanding at the end of the time period. The total number of outstanding long positions must always equal the total number of outstanding short positions. Let's look at an example to help clarify the difference between volume and open interest.

On day one, when Teresa buys one contract from Joe, the volume is one contract and the number of contracts outstanding is one. On day two, when Diane sells two contracts to Rose, the volume is two, but now there are three contracts outstanding. On day three, Teresa sells the contract she bought and Diane buys back the contract she sold, so the volume is one but the number of contracts outstanding is reduced to two.