medium · Volume Profile Analysis profile-shapes
A trader is monitoring 'Open Interest' (OI) during a 25 pip rally in GBP/USD. The Volume Profile shows a thin 'Trend Profile', and the OI has decreased by 5000 contracts during the move.
What is the institutional interpretation of this rally?
- Accumulation; institutions are 'unloading' shorts here to position for a much larger directional move ahead
- Weak rally; the move is being driven by short-covering (liquidation) rather than new buyers entering the market.
- Strong rally; the steady decrease in Open Interest signifies that the resting sellers have now been completely wiped out
- Balanced market; the trend shape on the profile is a 'False' signal because Open Interest is not rising
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