Unveiling Crypto Market Insights - Interpreting Volume and OI

5月14日

GM market enthusiasts!

In our previous post about Volume and Open Interest, we introduced the use of Volume and OI as confirming indicators. Today, we are going to discuss the relationship between trend, volume, OI, and the strength of the market, and apply the knowledge from both posts to the chart.

How can Volume and OI help us understand the strength of the market?
A good way to describe the relation between price, volume, OI, and the strength of the market is to examine the following four examples:

1. Rising prices, accompanied by an increase in volume and open interest, signal a strong market.
2. Rising prices, accompanied by a decrease in volume and open interest, signal a weak market.
3. Declining prices, accompanied by an increase in volume and open interest, signal a weak market.
4. Declining prices, accompanied by a decrease in volume and open interest, signal a strong market.

John J. Murphy highlights this relation in his book "Technical Analysis of the Financial Markets":
"If volume and open interest are both increasing, then the current price trend will probably continue in its present direction (either up or down). If, however, volume and open interest are declining, the action can be viewed as a warning that the current price trend may be nearing an end."

Looking at BTC/USD:
On Wednesday, May 1st, 2024, BTC bottomed above 56k. This bottom was followed by a strong rally, which was not accompanied by a significant increase in volumes or a meaningful increase in OI. Although the lack of volume increase between May 4th and May 5th could partially be attributed to lower trading activity on the weekends, it could also signal slight exhaustion of the rally.

Do you think the price of Bitcoin will increase, consolidate, or decrease in the following days?

Do you consider volume and OI as important confirming indicators?

Let us know in the comments.