Section 2 - Chapter 4 - Charting Volume and Open Interest

Section 2 - Chapter 4 - Charting Volume and Open Interest - Presented by Rohan Sharma - The CMT Coach - Chartered Market Technician CMT Level 1 Study Material - CMT Level 1 Chapter Wise Short Notes - CMT Level 1 Course Content - CMT Level 1 2025 Exam Syllabus Visit Site : www.learn.ptaindia.com and www.ptaindia.com

1. Chapter 4 - Charting Volume and Open Interest Section 2 - Charts - Market Price Data Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

2. Agenda Define volume Define open interest Describe typical methods for displaying volume in a price chart Describe how open interest is displayed in a futures chart This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

3. Volume in Technical Analysis 🔑 Key Facts About Volume 1. Definition: Volume represents the total number of shares/contracts traded in a given period. 2. Significance: It measures the strength behind price movements—higher volume confirms stronger trends. 3. Volume Indicators: Used to analyze price trends and reversals, examples include OBV (On-Balance Volume), VWAP (Volume Weighted Average Price), and Volume Oscillators. 4. Breakouts & Volume: A price breakout with high volume is more reliable than one with low volume. 5. Divergences: When price moves up/down but volume does not confirm, it signals potential reversals. 6. Volume Spikes: Unusually high volume often signals strong market interest, upcoming price movement, or potential reversals. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

4. Volume in Technical Analysis This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

5. Interpreting Volume in Trading This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Volume Behavior Interpretation High Volume + Price Up Bullish confirmation (buyers in control) High Volume + Price Down Bearish confirmation (sellers in control) Price Up + Low Volume Weak uptrend, potential reversal Price Down + Low Volume Weak downtrend, potential reversal Volume Divergence Reversal signal—watch for trend change Breakout + High Volume Strong breakout, likely continuation Breakout + Low Volume Weak breakout, likely false signal Volume Climax (Spikes) Possible trend reversal or exhaustion

6. 🎯 Pro Tips for Using Volume in Trading ✅ Confirm Trends: Use volume to validate price movements—high volume supports strong trends. ✅ Watch for Spikes: Volume surges often precede big moves; combine with price action for better signals. ✅ Use with Other Indicators: Combine volume with RSI, MACD, or moving averages for stronger setups. ✅ Avoid False Breakouts: Always check volume on breakouts—low volume breakouts are risky. ✅ Look for Divergences: If price moves up/down but volume doesn’t support, a reversal may be near. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

7. Open Interest in Technical Analysis 🔑 Key Facts About Open Interest (OI) 1. Definition: Open interest (OI) represents the total number of outstanding (unsettled) futures or options contracts at a given time. 2. Significance: It helps traders gauge market strength, liquidity, and trends. 3. Increase in OI: Signals new money entering the market, strengthening the current trend. 4. Decrease in OI: Suggests traders are closing positions, possibly signaling trend weakness or reversal. 5. OI vs. Volume: Volume shows the total trades in a period, while OI tracks the number of active contracts. 6. Used in Derivatives: OI is mainly used in futures & options trading, not in equities (stocks). This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

8. Open Interest in Technical Analysis This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

9. Open Interest in Technical Analysis This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Price Movement Open Interest (OI) Movement Interpretation 🔺 Price Up 🔺 OI Up Strong uptrend (bullish confirmation) 🔻 Price Down 🔺 OI Up Strong downtrend (bearish confirmation) 🔺 Price Up 🔻 OI Down Weak uptrend, possible reversal (short covering) 🔻 Price Down 🔻 OI Down Weak downtrend, possible reversal (long liquidation) Price Flat 🔺 OI Up Accumulation phase, possible breakout Price Flat 🔻 OI Down Lack of interest, trend continuation unlikely

10. Open Interest in Technical Analysis 📝 Cheat Sheet: Open Interest Indicators & Uses 🔹 Open Interest & Volume Relationship OI Increasing + High Volume → Strong trend continuation OI Decreasing + High Volume → Potential reversal or trend exhaustion OI Steady + Low Volume → Market indecision, watch for breakouts 🔹 Open Interest & Breakouts Breakout with Rising OI → High conviction, likely continuation Breakout with Falling OI → Weak breakout, possible false move This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

11. Open Interest in Technical Analysis 📝 Cheat Sheet: Open Interest Indicators & Uses 🔹 Open Interest in Options Trading High OI at a strike price can act as support/resistance. Sudden OI spikes in options may indicate smart money positioning. 🔹 COT Report (Commitments of Traders Report) Used by futures traders to analyze institutional positioning in different assets. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

12. Open Interest in Technical Analysis 🎯 Pro Tips for Using Open Interest in Trading ✅ Confirm Trends: Rising OI supports the strength of a trend; declining OI signals potential weakness. ✅ Use with Volume & Price: The best signals come when OI, volume, and price align. ✅ Watch for OI Divergences: If price moves strongly but OI declines, be cautious of a reversal. ✅ Options Traders Beware: High OI at specific strikes can act as magnets, influencing price action. ✅ Avoid Illiquid Markets: Low OI means poor liquidity, leading to slippage and wider spreads. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

13. Volume vs. Open Interest in Technical Analysis 🔑 Key Differences Between Volume & Open Interest (OI) This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Factor Volume Open Interest (OI) Definition Total number of contracts traded in a given period. Total number of outstanding (unsettled) contracts. Market Relevance Used in all markets (stocks, futures, options, crypto). Only relevant for derivatives (futures & options). Significance Measures market activity and participation. Measures market strength and trend confirmation. Changes Daily? Resets to zero at the start of each session. Cumulative (carries over to the next session). Impact on Price Trends High volume confirms trends and breakouts. Rising OI suggests trend continuation; falling OI may indicate reversals. What It Tells You Interest in a particular security. Conviction and strength behind price movements.

14. Volume vs. Open Interest in Technical Analysis 🔑 How to Interpret Volume & Open Interest Together This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Scenario Volume Open Interest Interpretation 📈 Bullish Continuation High Increasing Strong uptrend with new participants entering. 📉 Bearish Continuation High Increasing Strong downtrend with fresh short positions. ⚠️ Trend Exhaustion (Weak Uptrend) High Decreasing Short covering; potential reversal or consolidation. ⚠️ Trend Exhaustion (Weak Downtrend) High Decreasing Long liquidation; trend may reverse. ⏳ Indecision Phase Low Increasing Accumulation/distribution phase before a breakout. 🚨 False Breakout Risk Low Decreasing Lack of participation, possible fake move.

15. Volume vs. Open Interest in Technical Analysis 📝 Cheat Sheet: When to Focus on Volume vs. OI 🔹 Use Volume When... ✔ Trading stocks, forex, or crypto (OI does not apply). ✔ Confirming breakouts and trend strength. ✔ Spotting volume spikes that indicate major market moves. 🔹 Use Open Interest When... ✔ Trading futures and options. ✔ Identifying trend strength in derivatives. ✔ Confirming if smart money is accumulating or unwinding positions . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

16. Volume vs. Open Interest in Technical Analysis 📝 Cheat Sheet: When to Focus on Volume vs. OI 🔹 Best Practice: Use Both for Strongest Signals! ✔ High Volume + Increasing OI = Strong Trend Confirmation ✔ High Volume + Decreasing OI = Reversal Signal (Short Covering or Long Liquidation ) ✔ Low Volume + Low OI = Lack of Interest, Avoid Trading This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

17. Volume vs. Open Interest in Technical Analysis 🎯 Pro Tips for Traders ✅ Use Volume for Spotting Entry & Exit Points: High volume often precedes big price moves. ✅ Use Open Interest for Trend Confirmation: If OI increases with the trend, it’s more reliable. ✅ Beware of Low Volume Breakouts: Without strong OI, breakouts may fail. ✅ Options Traders Watch OI at Key Strikes: High OI can act as support/resistance. ✅ Combine with Other Indicators: Pair with RSI, MACD, or moving averages for better signals. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

18. Displaying Volume in a Price Chart 🔑 Key Facts About Volume Display in Charts 1. Volume Bars (Histogram) – The most common method, showing volume as vertical bars at the bottom of the price chart. 2. Colored Volume Bars – Green for buying volume (up days), red for selling volume (down days). 3. Moving Average of Volume – A smoothed version of volume to identify trends over time . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

19. Displaying Volume in a Price Chart 🔑 Key Facts About Volume Display in Charts 4 . Volume by Price (Horizontal Volume Profile) – Shows volume traded at different price levels, highlighting key support/resistance zones. 5. Volume-Weighted Indicators – Tools like VWAP (Volume Weighted Average Price) and OBV (On-Balance Volume) incorporate volume into trend analysis. 6. Tick Volume – Used in forex, where actual volume isn’t available, counting the number of price changes instead. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

20. Displaying Volume in a Price Chart This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Volume Display Method What It Shows Best Used For 📊 Volume Bars (Histogram) Trading activity per time period. Confirming trends, spotting volume spikes. 🎨 Colored Volume Bars Who is in control—buyers or sellers. Quick visual confirmation of bullish/bearish activity. 📉 Volume Moving Average Volume trend over time. Identifying increasing/decreasing participation. 📊 Volume Profile (By Price) Where most trading occurs at specific price levels. Spotting support/resistance zones. 📈 VWAP (Volume Weighted Average Price) The average price weighted by volume. Institutional trading, intraday strategies. 🔄 OBV (On-Balance Volume) Cumulative volume trend (adding on up days, subtracting on down days). Spotting divergences, confirming trends.

21. Displaying Volume in a Price Chart Cheat Sheet: Choosing the Right Volume Display ✔ Use Volume Bars for a simple yet effective display of market participation. ✔ Check Moving Average of Volume to smooth out volume fluctuations. ✔ Use Volume Profile to identify key price levels where buyers and sellers are active. ✔ Apply VWAP for intraday trading and institutional levels. ✔ Watch OBV for divergences between price and volume trends. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

22. Displaying Volume in a Price Chart 🎯 Pro Tips for Using Volume Displays ✅ Look for Volume Spikes – High volume often precedes big price moves. ✅ Use Volume to Confirm Breakouts – A breakout with high volume is more reliable. ✅ Watch for Divergences – If price is rising but volume is falling, the trend may weaken. ✅ Combine Multiple Methods – Use VWAP + Volume Profile for better decision-making. ✅ Avoid Trading Low Volume Markets – Less liquidity means higher risk of false moves. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

23. Equi Volume & Volume Histogram 🔑 Key Facts About Equi Volume & Volume Histogram 📌 EquiVolume 1. Definition: EquiVolume charts replace traditional candlesticks with rectangular bars where width represents volume and height represents price range. 2. Purpose: Helps visualize the relationship between price action and volume in a single view. 3. Width Interpretation: o Wider bars → High volume (strong market interest). o Narrow bars → Low volume (weak interest or indecision ). This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

24. Equi Volume & Volume Histogram This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

25. Equi Volume & Volume Histogram This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

26. Equi Volume & Volume Histogram 🔑 Key Facts About Equi Volume & Volume Histogram 4 . Trend Confirmation: o Wide bars in the direction of the trend confirm strength. o Narrow bars in an up/down trend may signal exhaustion . Breakouts & Support: Large volume (wide bars) near key levels increases breakout reliability . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

27. Equi Volume & Volume Histogram 🔑 Key Facts About Equi Volume & Volume Histogram 📌 Volume Histogram 1 . Definition: A series of vertical bars at the bottom of a price chart, showing trading volume for each period. 2. Purpose: Displays market participation and activity over time. 3. Color Coding: Typically green (buying volume) and red (selling volume). 4. Interpreting Volume Spikes: o High volume → Strong trend confirmation or reversal signal. o Low volume → Weak price movement, potential fake breakout. 5. Moving Average of Volume: Helps smooth fluctuations and identify sustained trends . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

28. Equi Volume & Volume Histogram This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Indicator What It Shows Best Used For EquiVolume Volume-weighted price action Confirming trend strength, identifying breakouts. Volume Histogram Volume per time period General market participation, trend reversals. Wide EquiVolume Bars High volume at that price range Strong trend continuation or accumulation/distribution. Narrow EquiVolume Bars Low volume at that price range Market indecision, possible reversal. Volume Spikes (Histogram) Unusual trading activity Major moves ahead, potential trend shifts.

29. Equi Volume & Volume Histogram Cheat Sheet: How to Use EquiVolume & Volume Histogram ✔ Use EquiVolume to Spot Strong Moves – Wide bars in trend direction confirm momentum. ✔ Check Volume Histogram for Trend Confirmation – Higher volume means more reliable moves. ✔ Look for Volume Spikes – Signals big institutional moves or upcoming volatility. ✔ Watch for Narrow Bars Near Key Levels – Could indicate market hesitation or possible reversal. ✔ Use with Other Indicators – Combine with VWAP, OBV, or RSI for better signals. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

30. Equi Volume & Volume Histogram 🎯 Pro Tips for Traders ✅ Breakout Confirmation – A breakout with wide EquiVolume bars and high histogram volume is more reliable. ✅ Avoid Low-Volume Trades – Thin bars (EquiVolume) or low histogram bars signal weak trends. ✅ Divergence Matters – If price rises but EquiVolume bars shrink, the uptrend may lose strength. ✅ Combine with Price Action – Volume alone isn’t enough; look at candlestick patterns too. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

31. Chapter 1 – Trend Premier Next Section 3 –Trend Analysis Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia