The Orthodox Interpretation of Changes in Open Interest
Next, it will be helpful to summarize the orthodox interpretation of open interest. This knowledge will be helpful when we see below how newer COT indicators have been developed that challenge much of this orthodoxy.
According to the orthodox view, an uptrend is healthy if it is supported by rising volume and open interest, since fresh money is assumed to be entering the market. Where they're falling, the trend is said to be weak and at risk of ending, since the uptrend is assumed to be caused by disillusioned short covering. Here money is leaving the market and the trend would be assumed to end once the short-covering has completed. Downtrends are said to be healthy if the volume and open ...
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