Summary of Volume and Open Interest Rules

Let's summarize some of the more important elements of price, volume, and open interest.

1. Volume is used in all markets; open interest mainly in futures.

2. Only the total volume and open interest are used for futures.

3. Increasing volume (and open interest) indicate that the current price trend will probably continue.

4. Declining volume (and open interest) suggest that the price trend may be changing.

5. Volume precedes price. Changes in buying or selling pressure are often detected in volume before price.

6. On balance volume (OBV), or some variation thereof, can be used to more accurately measure the direction of volume pressure.

7. Within an uptrend, a sudden leveling off or decline in open interest often warns of a change in trend. (This applies only to futures.)

8. Very high open interest at market tops is dangerous and can intensify downside pressure. (This applies only to futures.)

9. A buildup in open interest during consolidation periods intensifies the ensuing breakout. (This applies only to futures.)

10. Increases in volume (and open interest) help confirm the resolution of price patterns or any other significant chart developments that signal the beginning of a new trend.