Using open interest & RSI to trade futures 🙋

Open interest (OI) in combination with the relative strength index (RSI) can be such a powerful tool in your trading arsenal. Let me show you with some examples.

Photo by Kanchanara on Unsplash

Add indicator’s

First up, you need to add the binance open interest indicator. The good news is that it is free…

Next, you can add another free indicator called ‘Relative Strength Index’ RSI. You can just search for RSI.

The Bullish divergence case

Ok then, lets get started with a few examples. See below that we are looking for bullish divergence to go into a long.

1. Note price is going down
2. RSI, however is oversold and onthe way up
3. We have confluence with Open interest that is also on the way up.

The trick is too foretell that divergence is likely to happen since OPEN interest is making its way up, while OI is heading up.

This was 23% move…

Now, you want to catch the liquidation wick down, so how do you know where to set your limit order long?

Well, thats where price action comes into it. You can see the low from June, so a good guess is there are lots of longs, with a stop loss just below that level, So setting your limit order just below that price is a good bet.

The bearish divergence case

Ok, we had our bull case, now how about our bear case. You can see below

1. Price is increasing
2. Open interest is decrasing
3. We end up with divergence on the RSI

Again, we could foretell that divergence could play out, since open interest was on the decline.

This short would have resulted in a 17% move

A few more cases

A nice clear cut case below, again, with the open interest increase, betting on divergence was a good probability.

I also outlined bearish hidden divergence in orange and you can see that was NOT playing out.

Conclusion

Ok, so now that that is sorted, lets look at right now.

1. We have had a good liquidation wick down, which should have resulted in bullish divergence.
2. However, it did not and we can see OI is not going crazy up
3. Bearish hidden divergence (orange) is showing up

So what am I doing?

a. I will not long/short from this position

b. So should slight bullish divergence win the day, I will short between 0.618 and 0.786.

b. Should bearish hidden divergence win, I will long from 16500 with stop loss under the wick.

I will report back here next week, lets see how this plays out.