Market Structure Masterclass a eo aC to eres ean |b) eee ics 4What is open interest? Cee CUS Ta een ES Onc ea ten ae eC eo PRN meee Ue oO aL ce AC Contracts or positions that are held by market participants in a given market or instrument. Inthe context of eryptocurrency derivatives trading, open interes s particularly important because it reflect the total number of contracts that have been created by traders looking to either buy or sella particular cryptocurrency ata speci price, and which PN eee Sct Teer eso eT Te LLM Ae SET) interes in a particular eryptocurrency Large increase of O can suggest that there is significant interest ina particular market. while low levels of open interest can indicat a lack of interest or participation in that market. When using open interest correctly with any trading methods you already use can assist you in making better decisions towards {at given trade and understand what is actually happening within the price actionHow to interpret it. esd SN ACR -If Olis rising then we havea clear indication that contracts are being opened. More liquidity moving into the market. Supporting Toe ee Onn Sat NF -lf lis decreasing this isan indication that contracts are being closed and liquidity is leaving the market. Sometimes we can View ths information as a potential squeeze in the market or just participants de-risking positions/closing for profiBelow is a small chart you should keep to hand to help you understand price against open interest and what eee RMU e eM ee ae OPEN INTEREST Longs Opening = Shorts Closing Icovering =Shorts Opening = Longs Closing JcoveringWhy is it useful? Gauge Market Sentiment - Open interest can provide insights into market sentiment by giving an idea ofthe number of traders and Te Eee ne cen ai ot CER NO SSE Log Loh Confirm Price Movements - An increase in open interest along with aprioe increase or decrease can confirm the strength ofthe trend in Tc een eens Ceo RO ee mene a Monitor Market Liquidity - High open interest can indicate aliquid market with many participants, while low open intrest can suggest Tn ee oe et TRC cee eee Cee Cen en mc a es aoe cee ee er no CO oe ee en Polenta price movements as | have already mentioned tis important to Keepin mind that open interest shouldbe used with confluence CLChart below shows the open interest across multiple exchanges and how it reacts to price action. You can Reem UU ee MRO LUN SUC a CC se jie ""Chart below shows the Ol for BTC/USD contracts for each exchange and the change we have seen in that Pan eeChart Examples of Open Interest. Shorts Opening. Decreasing price with rising open interest.Longs opening potentially attempting the breakout. Later are seen closing out after the breakout filedTRUE eee UA nee IR eee AO ee eae ROS Ua SUS Lee een Te OS aCe eM ee UE tee Tr Beet ecard Sue ee ORNS OT er eR etd SR Ce Nd With open intrest overtime iis better to use it hand in hand with some sort of deta data also, Delta, price direction and PC see Cn eu enue Footprint charts are a good start getting sean time watching price action/delta/open interest to understand market cas {you do not have access to footprint data then you can also use the website known as cOINALYZE, which is what the brevious charts have been posted from. In the next section | am going to give you a small introduction to using Cumulative volume delta with Ol and why they are best to use together.What is Cumulative volume delta (CVD)? en Cece NO ee ec Cee te ee oe ee ot Ree eee ee ee a eee ee eee eres Se ec ue At oe eto Coe eo cer ec De Cre Cee eee tet Po ee ete ee et er ee ee ee et ne ete ee ee CO Teen ce nt es ee Noe vat A Cee Ue cee eee De ee Coen ee ee EO ce ome nd Cone!CET M Oe Cae MOS COE ee See oem ee nr) Pe ees ee Ot eee ee Cen ete ote AES ee ee te et ee ea a) follow Tne nec eee eae er ete eeeUES EOS UU eC CVD following on from the delta calculation in the last page. Bids/Asks -> Delta -> CVD. ia Should make it more clear how when CVD increases so does price and vice versa for the downside. Which brings me to the next part of noticing when price does not go hand in hand with CVD and how to react to this.SAE oS Ue AEN LOM Cee een TUR cee Sa Sellers in control. Then rising price and CVD we can see that buyers are back in control.CNM ree These are very important when using CVD and price and can be great tools to notice when entering trades. You want to mainly focus on absorption rather than exhaustion with these. The absorption divs ae far stronger than the exhaustion ones. rs U Dm ‘that buyers are ind attempting to push price higher, but price does the opposing thing and forms lawer high wl cud makes the higher high This is buy absorption The bullish divergence is seen onthe far right. Sellers attempt to push price lower seen with a lower low in CVD wile price Dee oa aL Pence een shouldbe used in confuence Cured CrosGe Ue ee eee en UTS eee NSE Aa Our first example was shorts opening. We can confirm this with decreasing CVD. Shorts opening = CAR ee ORS eee ee UTIs Oe LCC ee a ea SNCThe second example was longs attempting to play a breakout which eventually lost momentum. We can see CVD rise with price/oi on the way up and decrease with price/oi on the way down. Most likely the late longers were forced out of their trades which led to the impulsive move down and fast drop in Ol.TUE CURR Ire er eC EULA meee SD rae OR ee ee SS sellers which lead to a bounce and the close out of some open interest (Price bounces, Ol dropped, CVD. rises = shorts closing/taking profit).OOM DEI eg cee Broan | have to remind you this is just an example. Usually you want to be looking for signs of absorption at some sort of key evel or POI Pen ee ene ae land then chances are the trade will not goin your favour. TEU Pee CR Seo toe Overtime the further apart the swing pont andthe lager price Ses en sta be.ieee ESOT TTS nV SRA SOON eS RELA OLS L D not, usually means you have something to capitalize on, we are traders we look to trade both ways. SOON exe ACS OL -Shorts closing = buying pressure. CVD up, Ol down. SAM ded 8 mT Shorts opening = selling pressure. CVD down, Ol up. SECU ee eee LR Oe om es Ue DE Ae RIRE