Volume-Open Interest Divergence

Volume-open interest divergence is a technical phenomenon where the price of an asset and the open interest move in ways that contradict the expected trend, often signaling an impending reversal. For example, if the price is rising but open interest is falling, it suggests that the move is being driven by short covering rather than new long positions, indicating a weak trend.

Similarly, if the price is falling but open interest is rising, it indicates that new short positions are being aggressively opened, signaling strong bearish conviction. Monitoring this divergence provides insights into the strength and sustainability of a trend.

It helps traders distinguish between genuine institutional accumulation and retail-driven speculative bubbles, making it a vital tool for analyzing market health.