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Ethereum- Open Interest and Bollinger Bands correlation
Open Interest helps traders to understand market sentiment and volatility. When the value of the indicator is high, it means that a large number of contracts are currently opened in the market (trend is rising). Low values of the metric suggest many contracts have been closed or that there are not many opened positions (trend is waning). Bollinger Bands (BB) is a technical tool that provide traders informations regarding price’s volatility. When the price touches the upper Bollinger Band, it can indicate an overbought signal. On the other hand, when price touches the lower band, it can indicate an oversold signal. Looking at the chart, we can notice that there is a correlation between Open Interest and Bollinger Bands, a correlation that can be used in analyzing the Ethereum’s market conditions and sentiment (or of any other selected coin). When the Open Interest was at a high level and the ETH price reached the upper BB zone, a price correction followed. When the Open Interest was at a low level or in a significant decrease and the price reached the lower area of the BB, an optimistic trend followed. This correlation can provide us an insight on when to enter and when to exit a position or when to buy/to sell on spot, depending on each ones trading strategy. This correlation can be used especially in volatile market conditions and it can be even stronger if combined with other indicators for confirmation, like RSI and moving averages.