Several chartists use the approach of price-action to predict the market movements. Some include volume too. However, most professional traders prefer using a multidimensional approach to market analysis. Price, Volume and Open Interest are the 3 dimensions which are carefully evaluated by these traders.
The total number of outstanding or unliquidated contracts at the end of the day is referred to as Open Interest. It represents the total number of outstanding longs or shorts in the market. Please note:It is not the summation of both
It is the number of contracts. Every contract needs 2 parties- a buyer and a seller. Hence, two parties agreeing on trade forms 1 contract. The open interest figures change every day. These changes such as increase or decrease in OI give the traders a clue as to how the market might behave next.
Few days back, during the end of the weekend, you might have heard that BTC rallied such violently after a short squeeze, where a lot of the short positions got liquidated. That is nothing but an aspect of the Open Interest.
With every trade that goes through, the OI might: