“A decrease in open interest along with an increase in price mostly indicates short covering.”
What does the above mean? I am familiar with spot market & have a very basic understanding of f&o.
If you know what is OI then you can get this.
Please go to varsity to learn abt OI.
Basically this means ppl are closing positions and pulling out of that specific contract.
Now if overall interest in any thing is reducing what will happen to price? The prices must go down!
But here prices are increasing!!!
That means there was a huge short position in the commodity in the market. But now bears are not interested and hence are pulling out, that means they are buying. Sellers get the whip of the situation and they push the prices up. Now bears want to get out of the position asap - further prices up.
Hence “A decrease in open interest along with an increase in price mostly indicates short covering”
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Excellent explanation. Thanks.