I've noticed that many traders only look at the price and overlook one of the most useful indicators — open interest in the futures market. Open interest shows the volume of all active positions, and it’s not the same as the price trend.

When I started analyzing open interest together with price movement, a lot fell into place. Here's what I observed in practice.

If the price is rising, and open interest is also increasing — it means new leverage is actively entering the market. Sounds positive, but in reality, it increases the risk of sharp movements and mass liquidations. The market becomes overheated.

However, when the price is going up but open interest is falling — that’s a completely different story. Shorts are closing, and the rise happens without leverage. Such movements are usually healthier and more sustainable. I prefer these scenarios.

Now, if the price is falling and at the same time open interest is rising — traders are building shorts or placing aggressive hedges. You need to be cautious here because the risk of a sharp rebound upward is quite high.

And the last scenario: the price is falling, and open interest is falling along with it. That’s capitulation. Positions are being closed, the market is clearing out. After such moments, a recovery often begins.

Why is all this important? Exchanges make money on liquidations, so when open interest is overheated, the market often chooses the path that triggers most traders’ positions. This is not theory; it’s mechanics.

The simple conclusion: open interest is not a buy signal. It’s a risk and market structure indicator that helps me avoid catching falling knives in overheated movements. You should start tracking it if you haven’t already.