If you are familiar with trading derivatives, you would know how important understanding market sentiment is when trading. In fact, one of the biggest distinctions between a winning trade and a terrible one is the ability to read the subtle cues of the market. For example, you need to know if the price reflects strength or whether the market is simply responding to an event like OPEC compliance. Here is where you have a sense of Open Interest (OI). Open interest is an incredible indicator of how much money is going into or out of a particular contract. However, what if you could actually see it in real time? This is the hope of Oi Pulse.
This blog post will provide you with an entire breakdown of the Oi Pulse Tool. We will explain how it works, its useful features, and the general advantages it provides to traders. If you are a seasoned professional or if this is your first time learning anything about derivatives, this is information that could provide you with a competitive advantage.
How Open Interest OI Pulse Works?
To explain Oi Pulse, we first need to understand Open Interest. Open Interest is the total number of outstanding or open contracts in a market. Open Interest is NOT the same as volume; it does not measure the number of contracts traded over a specific period. Consider it like this: you and a fellow trader open a brand new contract, which then increases OI by one. If the two of you close your positions, it will then decrease OI. If you simply transfer the contract(s) to a third party, OI does not change.
Now, Oi Pulse has taken this concept to the next level. While most of the official sources will provide OI statistics after a delay, OI Pulse will measure the change in open interest, minute-by-minute. This real-time tracking allows traders to get the "pulse" of what is happening in the marketplace.
The tool can assist in interpreting OI data by pairing it with price data. The relationship between OI and price can tell traders a lot about market sentiment:
Increasing Price & Increasing OI: This is a bullish signal, indicating that new money is entering the market and driving the price higher. It's a strong affirmation of the conviction of the trend.
Decreasing Price & Increasing OI: This is a bearish signal. Indicative of new short positions being created confirms OI is true and continues the downward move.
Increasing Price and Decreasing OI: This scenario can indicate a trend that is weakening. Often it signals short covering--meaning the traders who are short are closing their positions, which in turn pushes the price upward, without new bullish money coming to the market.
Falling Price & Falling OI: This indicates long unwinding, and traders with long positions are exiting the market; so both are falling off in price and OI.
By presenting the data in a simple chart, Oi Pulse has streamlined a complicated analytical approach for you.
Core Features of the OI Pulse Tool
The Oi Pulse tool is loaded with features intended to provide a complete picture of the market for derivatives. Here are just a few of its main features that make it a great trading tool:
Real-Time Options Chain: This may be the most important feature. Minute-by-minute refresh of the options chain and display of open interest at different strike prices. There is no match to this functionality on the typical trading platforms.
Live Put-Call Ratio (PCR): The PCR is a major indicator of market sentiment. Oi Pulse provides you with a PCR that you can assess in real-time. You can gauge at a glance whether the market sentiment is bullish or bearish.
OI Spurts: This unique feature gives traders alerts on sudden, notable spikes in open interest. These open interest "spurts" can serve as a leading indicator that an immediate market move is pending and allow you to make your trades before they react.
Historical OI Data: The platform provides historical open interest data so you can backtest your strategies and see how OI has behaved in the past.
Graphical Representation: Once again, complex data is transformed into simple, easy-to-read charts and graphs to help see the trends and identify anomalies.
Trending OI: Allows you to see how open interest has changed over a time period, giving you a bigger picture of which way the trend is and where the big players are putting their money.
Benefits of Using Open Interest OI Pulse
By utilizing the capabilities of Oi Pulse, you can improve your trading decisions. Here are some key benefits:
Better assessment of market sentiment: By knowing the real-time OI change, you will develop a better sense of the market's direction and where the sentiment is to help you avoid getting trapped on the wrong side of a big move.
Finding support and resistance: For certain strike prices, high OI can indicate strong levels of support and resistance. By seeing where a lot of contracts are centered, you can get a better sense of where potential turning points may occur.
Confirming Trading Signals: Oi Pulse could be effective in confirming signals from other technical analysis tools. For instance, if you are analyzing price action breakout and an OI spike, the OI spike would imply strong confirmation of a new trend direction.
Timely Decisions: For intraday traders, every second is paramount. The real-time data from Oi Pulse allows you to be very quick on your feet and make timely decisions, which is critical for intraday traders.
Better Risk Management: If you can determine the strength of the trend and where the key support/resistance levels are located, you can place better stop-losses and targets and improve your risk management process.
Conclusion
Open interest is a powerful indicator, and Oi Pulse adds power to that tenet by providing real-time, actionable, and useful information. Oi Pulse is a must-have tool in your trader tool set if you want to take the steps away from irresponsible technical analysis, and get real depth into market insight. To take your trading knowledge to the next level, consider our Advanced Level Options Trading Course, which delves into advanced strategies and the use of tools like Oi Pulse. Doing so will improve your decision-making, provide efficiency of better risk management, and increase the likelihood of long-term sustainable returns in the derivatives market.
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