Strength Indicators Volume & Open Interest Commodity Futures Chart
UNDERSTANDING VOLUME and OPEN INTEREST
Commodity Futures Market strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of this indicator. Their signals are coincident or leading the market.
Volume shows the total number of contracts traded (either bought or sold, but not both) during a specified period of time (a day, a week, etc.) for all the contract months of a commodity. Volume is used to validate the signals generated from charts or technical indicators. Heavy volume tends to validate signals more than light volume. (The assumption is that greater market participation/activity leads to a more accurate reflection of sentiment strength.)Volume also shows the intensity of changes and the health of existing trends.
Technicians believe that volume precedes price, meaning that the loss of upside price pressure in a uptrend or downside pressure in a downtrend will show up in the volume figures before presenting itself as a reversal in trend on the bar chart.