Published on: April 18, 2025
In derivatives trading—especially options and futures—Price and Open Interest (OI) analysis is a powerful method for gauging market sentiment. When used correctly, it helps traders decode whether money is flowing into or out of a position, and whether bulls or bears are in control.
Let’s break down the core theory, look at how to apply it practically, and then explore how tools like RZone help track changes over a period of 2 to 21 trading days, making it easier to spot high-probability trades.
What is Open Interest (OI)?
Open Interest refers to the total number of open contracts (futures or options) that haven’t been settled. It increases when new positions are created and decreases when positions are closed (squared off).
- Rising OI = New money entering the market
- Falling OI = Positions are being closed, money is exiting
Price and OI Relationship: The 4 Core Combinations
By combining price movement with open interest, we get four classic market scenarios. These help traders understand what institutional players might be doing:
| Price | Open Interest | Interpretation | Market Sentiment |
| ↑ | ↑ | Long Buildup | Bullish (new longs) |
| ↓ | ↓ | Long Unwinding | Mildly Bearish (longs exiting) |
| ↓ | ↑ | Short Buildup | Bearish (new shorts) |
| ↑ | ↓ | Short Covering | Bullish (shorts exiting) |
Let’s go deeper into each phase to understand what they mean and how they shift over time.
Phase Shift: From Long Unwinding to Short Buildup (Bearish Shift)
Long Unwinding: Traders who had bullish positions are now booking profits or cutting losses as the price drops.
- If this continues and OI starts rising again while price continues falling…
- We enter a Short Buildup phase: New bearish positions are being added.
Trading Insight:
- This transition signals a clear sentiment shift from bullish to bearish.
- Traders may consider shorting the stock or buying put options.
- RZone helps track this shift over multiple days to validate the trend.
Phase Shift: From Short Covering to Long Buildup (Bullish Shift)
- Short Covering: Traders who had bearish positions are exiting as price rises.
- If OI starts increasing again alongside rising prices…
- It moves into a Long Buildup: New bullish positions are entering.
Trading Insight:
- This suggests a strong trend reversal or breakout.
- Traders can go long on the stock or buy call options.
- RZone helps validate if this is a genuine buildup or just a short squeeze.
Practical Use of RZone: 2 to 21 Days Scan
RZone is a powerful tool that allows traders to scan the price and OI action over customisable periods, typically between 2 and 21 trading days. Here’s how it helps:
- Identify Phases Over Time:
- Instead of looking at just 1-day movement, RZone shows trends like:
- How long has a Short Buildup been sustaining
- Whether a Short Covering has begun after a prolonged short buildup
- Whether a Long Buildup is fresh or mature
- Use Case: Imagine a stock showing the following pattern in RZone:
- Days 1–5: Price ↓, OI ↑ → Short Buildup
- Days 6–8: Price ↑, OI ↓ → Short Covering
- Days 9–12: Price ↑, OI ↑ → Long Buildup
This tells you:
- The stock has transitioned from bearish to bullish sentiment.
- Momentum is building, and it might be the start of a strong uptrend.
- It’s a great candidate for long trades or bullish options strategies.
You can use this scanner by following these steps:
- Log in to RZONE with your Super Demat Account
- Go to Matrix: Price & RSI > Price OI Matrix
- Select Group, Time Frame, Number of Bars
4. You will find the results which can be exported to Excel as well.
Final Thoughts
The combination of Price and Open Interest analysis offers a unique lens into a trend’s underlying strength or weakness. By using tools like RZone, traders don’t just react—they anticipate market moves based on how money is flowing in or out of positions.
When you understand the story behind OI shifts, you start seeing beyond the charts—and that’s where the edge lies.
Want help scanning some stocks using this method or breaking down a recent RZone scan? Post on the forum.
In case you require a detailed explanation on any of the studies or scanners, do write to us on the Forum and don’t forget to tag me, and we may write a blog on it.
