Bars Based on Contracts' Volume As % of Open Interest

[Guest Tresor]

I am a new member of the Forum and a very unexperienced trader who constatnly looks for new ideas.

 

I am a swing trader. I reverse my position every 2 - 4 days based on an indicator that I bought (I do not show the name of the indicator because I do not know if the Forum allows to show the stuff that is not free). Please see how it works on the attached print screen. When the blue line goes up and red dots appear above it, I reverse into short. When there are green dots above, I reverse into long.

 

I am from Europe (forgive my English). Our exchenges offer 'open interest' data in ticks, while US exchanges offer 'open interest' data daily only. Open interest in my local exchange varies from 50,000 to 80.000 during a week - that is a huge fluctuation.

 

The indicator that is shown in the print screen works perfectly on 20 minutes bars so far. But it will eventually mismatch 20 minute bars and my signals will become less and less accurate with time.

 

I was thinking of how I can make this indicator resistant in time and one idea flashed my mind. I was wondering if any of you guys came accross a charting software that allows to create bars based on a number of contracts traded as percentage of overall open interest.

 

It is my guess (I may be totally wrong here :crap:) that when I replace my time bars with the ''bars based on a number of contracts traded as percentage of overall open interest'' - sorry for this lenghty and hard-to-understand phrase - I could get adequate signals no matter what wolume and time.

 

Could I get your opinion on this concept?

 

Regards

[momentom 10]

Why do you think that open interest has any relevence? There is a huge amount of daytrading that does not give any change in open interest.

 

Most charting packages have Volume bars that allow you to chart bars of a constant volume. Most traders that use this form of charting use an amount of volume that gives the number of bars persession that suits their style. As a daytrader, I use volume bars that give me between 200 and 300 bars per session.

 

If you really want to have volume bars dependant on open interest, its a matter of looking at open interest periodically and then manually changing the number of contracts required to create your volume bar.

[Sparrow 10]

Momentom, I was thinking the same and it should work that way, except for the daily's or higher because open interest changes but you usually are only able to specify a fixed volume.

 

That being said, I doubt you'll be able to find a multi day charting package which can do that.

[BlowFish 10]

Fascinating idea Tresor.

 

Which exchanges give real time open interest? That would give an intraday trader a potentially huge advantage. Coupled with volume you would know if people where buying/selling to open/close positions.

 

Momentom I think you might of mis-read the original post , Tresor is saying on the exchange he trades that you can see the change in OE on a tick by tick basis. WOW!

[Guest Tresor]

Why do you think that open interest has any relevence? There is a huge amount of daytrading that does not give any change in open interest.

 

Most charting packages have Volume bars that allow you to chart bars of a constant volume. Most traders that use this form of charting use an amount of volume that gives the number of bars persession that suits their style. As a daytrader, I use volume bars that give me between 200 and 300 bars per As I mentioned I am a swing trader. I reverse my position on average every 4 days. And session.

 

If you really want to have volume bars dependant on open interest, its a matter of looking at open interest periodically and then manually changing the number of contracts required to create your volume bar.

 

Hello momentom,

 

Many thanks for your reply. You are definitely right when saying that open interest is of no relevance for a daytrader.

 

Believe me, for me the open interest does have some significance. If there was no significance to OI nobody would have deviced the Herrick Payoff Index that analyses volume, price changes, and open interest changes to determine the amount of money flowing into or out of a futures contract. http://www.forexrealm.com/technical-analysis/technical-indicators/herrick-payoff-index.html

 

As I mentioned I am a swing trader. I reverse my position on average every 4 days. OI can change (which often happens) by as much as 70% durring these 4 days.

 

Below are some of my findings:

- if OI is 40 thousand and I work with my oscillators on bars that shows, e.g. volume of 1000 contracts then my oscillators work perfectly;

- but when the OI rises to as much as 80 thousand my oscillators are less accurate (to say it gently) on 1000 contracts' bars (and I have to adjust the settings of my oscillators or use time bars) - this is my biggest pain in the ass. Why shouldn't a machine filter the volume bars by OI?

 

I believe this seems somewhat abstract to guys who do not have OI in ticks.

 

I was merely interested if there is any software that I can produce volume bars filtered by OI.

 

Regards

[Guest Tresor]

Fascinating idea Tresor.

 

Which exchanges give real time open interest? That would give an intraday trader a potentially huge advantage. Coupled with volume you would know if people where buying/selling to open/close positions.

 

Momentom I think you might of mis-read the original post , Tresor is saying on the exchange he trades that you can see the change in OE on a tick by tick basis. WOW!

 

Hello BlowFish,

 

I am from Poland.

 

Attached is a red price action and blue open interest (both in ticks).

 

Frankly saying I have already spot some repeating patterns between price actions and the way OI behaves.It really is fun to see where the dumb money is buying or smart money is getting short just by observing some curvatures of OI. I will post some jpgs when discussion is on

 

I believe most East European exchanges offer OI in ticks. And if I am not mistaken also France.

 

Just between us, I belive the volume is very important. If one could only filter it by OI...

 

Regards

[mister ed 10]

Tresor - really fascinating idea ... and how cool is it to get OI that is so much more up-to-date than what is offered on US exchanges!

 

I am going to look more closely at your chart ... great thread thanks.

[Blu-Ray 10]

Tresor - really fascinating idea ... and how cool is it to get OI that is so much more up-to-date than what is offered on US exchanges!

 

I am going to look more closely at your chart ... great thread thanks.

 

And following on from Mister Ed and BlowFish, I think it sounds a great idea, and I'm very interested to hear more as I trade the Eurex. Please could you explain more on how you incorporate it into your trading.

 

Cheers

 

Blu-Ray

[mister ed 10]

Also Tresor - on first inspection the chart seems to show an ever-increasing OI (with the occasional wiggle) ... can you explain it a little further?

[Guest Tresor]

Tresor - really fascinating idea ... and how cool is it to get OI that is so much more up-to-date than what is offered on US exchanges!

 

I am going to look more closely at your chart ... great thread thanks.

 

Hello mister ed,

 

The screen that I attached shows only one day. Interesting conlusions may be drawn when looking at a few days' charts.

 

The picture that is attached to this post shows the following (I can't edit the picture, so I will decribe it):

 

a) on 10 paz (10 Oct) the price reached 3960 at a higher OI, on 11 paz (11 Oct) the price reached again 3960 but at a lower OI (divergence???) - so I shorted; the future fell from 3960 to 3790 (4.2%) - good earning.

 

b) on 25 paz (25 Oct) the price reached 3950 at a higher OI, on 29 paz (29 Oct) the price reached 3980 at a much lower OI (the smart money was selling; dumb money was buying); the price fell 5%. the dumb money did not see the huge double top and the price fell another 5%. look how quickly OI was closing their position starting from 6 lis (6 Nov).

 

A few weeks ago I changed my charting software from a Polish one (which is a crap) - it freezes my computer and switched into MultiCharts. I personally believe that MultiCharts with their new beta is far better for charting than Tradestation.

 

Unfortunately, any good charting software that is made is designed primarily for US market (which lack OI in ticks)

 

The purpose that I started this thread is that I no longer want to look at divergences between price action and OI or extreems between price and OI. Extreemes between price and OI work similarily to a relation between and index and implied volatillity on options (silimilar logic for reverasal is used to s&p and vix).

 

I just wanted some braniacs like you guys to confirm / deny what I discovered, namely that if the volume bars were OI adjusted there would be no need to change parametres of indicators every time OI changes dramatically.

 

If this is the changing OI to blame for then we should talk to our software providers to create another type of bars that would be called ''contract volume - OI adjusted'' or something

 

Or at least they should make it possible in their software to connect OI in ticks for their European customers so that we could use a correlation indicators on price - OI

 

Guys, your thoughts?

[thrunner 10]

our exchenges offer 'open interest' data in ticks, while US exchanges offer 'open interest' data daily only. Open interest in my local exchange varies from 50,000 to 80.000 during a week -

Could you please define what your exchange's definition of open interest is? How is it calculated?

In the US exchanges and data feed suppliers, OI is often defined as 'Down Volume' or 'Down Ticks' for intraday tick data.

 

[Guest Tresor]

Could you please define what your exchange's definition of open interest is? How is it calculated?

In the US exchanges and data feed suppliers, OI is often defined as 'Down Volume' or 'Down Ticks' for intraday tick data.

 

 

Hello thrunner,

 

Remember you from elitetrader

 

Open interest are all opened (not closed) position. E.g. if OI is 70,000 and I will open 1 long position (buy 1 contract) and at the same time you will open a short position (sell 1 contract) then the OI will be 70,001.

 

Just to explain the concept that I have in my mind:

 

I tried for many months to be always in a winning position. There was on my monitor (i) price chart and (ii) several stochastics below: 30 sec stochastic, 3 minute stochastic, 10 minute stochastic, 30 minute stochastic, and so on.

 

What stroke me was that when there were small changes in OI I could have very profitable trades when looking only at two stochastics. When there was huge volatility in OI I often got many conflicting signals.

 

I heard from some smart guys that supply and demand make the price move. Volume is very important as volume always preceeds price (and this sort of statements with which I agree). You can draw valuable conclusions based on volume - no doubt about it!

 

Now, part of equation are: demand and supply (you know these from bid/ask table), volume up / volume down (you can read how much volume goes into bull or bear trade from indicators). The only variable to this equation that you lack i how OI changes. For sure the are some other variables. But this one seems somewhat unexploited to me.

 

A volume bar of 1,000 contracts at OI of 50,000 is for sure something different that a volume of 1,000 contracts at OI of 120,000. Don't you think?

 

But still the candle you get on your chart is the same. And its weight, unfortunately, to your oscillators is still the same.

 

Therefore I thought that a filter would be needed here.

 

Sounds interesting?

[BlowFish 10]

thrunner I think the accepted definition is "the total number of options and/or futures contracts that are not closed or delivered on a particular day." Of course if you are getting real time OE then you would know this tick by tick rather than day by day. For every buyer there is a seller of course but OE tells you if they are trading to open or trading to close.

 

Put another way its the number of open positions held by traders.