Volume and Open Interest: Classic Trading Strategies for 24-Hour Markets

by Kenneth H. Shaleen

Quick Summary

This revised edition provides a comprehensive framework for analyzing futures markets through the interplay of price change, volume level, and open interest fluctuation. Shaleen demonstrates how these three variables, when studied together, produce reliable directional signals for the major price trend and its underlying strength. The book addresses modern challenges of 24-hour trading, data organization from internet sources, and the Commitments of Traders report as supplemental analysis tools.

Detailed Summary

Kenneth Shaleen's "Volume and Open Interest" stands as one of the most focused treatments of volume and open interest analysis in futures markets. The revised edition updates the original 1992 work to address the reality of 24-hour electronic trading and the explosion of data sources through the internet era.

The book's core thesis is deceptively simple but profoundly practical: by correlating price change direction with volume levels and open interest fluctuations, a trader can determine the health of a prevailing price trend and anticipate its continuation or reversal. Shaleen builds this framework systematically. The opening chapters establish the "General Rule for a Healthy Price Trend," which states that rising prices accompanied by rising volume and rising open interest signal a healthy bull market driven by new buying, while falling prices with rising volume and rising open interest confirm a healthy bear market driven by new selling.

Shaleen insists on using total volume and total open interest rather than individual contract month data, a methodological point he defends at length. The book provides a disciplined worksheet-based approach for traders to systematically categorize volume as high, average, or low relative to recent norms, then combine this with price direction and open interest changes to derive actionable signals.

The chapters on "Specialized Problems" and "Idiosyncrasies" are where the book transcends simple rule-following. Shaleen addresses the distortions created by options on futures, the mechanics of rollover surges in open interest near contract expiration, pre-holiday volume patterns, and the difference between hedge-dominated and speculator-dominated markets. He shows how to mathematically detrend open interest for cash-settled futures like Eurodollars, where the normal decline in open interest near expiration must be separated from meaningful changes.

The chapter on the Commitments of Traders (COT) report teaches traders how to decompose aggregate open interest into commercial hedger, large speculator, and small speculator categories, then compare current positioning against seasonally normal levels to identify when one group is abnormally extended.

Chapters on support and resistance explain how to identify benchmark price levels where volume and open interest analysis can confirm or deny the significance of a test. The case studies chapter walks through complete analytical sequences on real market data, forcing the reader to apply the worksheets before revealing outcomes.

The new chapters in the revised edition -- "Twenty-Four-Hour Trading" and "The Data" -- address the fragmentation of volume across time zones and exchanges. Shaleen discusses how Asian and European foreign exchange dealers use futures volume and open interest from the Chicago exchanges to obtain a directional market view, even though these dealers trade primarily in the interbank cash market. The data chapter surveys available sources and discusses the pitfalls of different reporting conventions.

The appendices provide a glossary, a historical overview of the development of volume and open interest analysis, a primer on basis relationships, seasonal patterns in volume and open interest, and exchange telephone numbers and web sites for data retrieval.

This book is essential reading for any futures trader who relies on technical analysis. While many modern charting platforms relegate volume and open interest to small sub-panels, Shaleen argues persuasively that these variables contain unique information about market participant behavior that price alone cannot reveal. The disciplined worksheet methodology ensures that the analysis is systematic rather than impressionistic.