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Question 1 of 10
1. Question
Which of the following statements is/are true for the number of open interest?
I. OI numbers go up or down based on how many new traders are entering the market and how many old traders are leaving.
II. OI goes up by one when one new buyer and one new seller enter the market. This act creates a new contract.
III. OI goes down by one when a trader who is long closing out one contract with someone who is already short. Because this contract is now closed out, it disappears from the OI statistics.
IV. If a new buyer buys from an old buyer (who is selling out), total OI changes by one. If a new seller buys back, or covers from a new seller entering the market, OI also does not change.
Correct
OI numbers go up or down based on how many new traders are entering the market and how many old traders are leaving. OI goes up by one when one new buyer and one new seller enter the market. This act creates one new contract. OI goes down by one when a trader who is long closing out one contract with someone who is already short. Because this contract is now closed out, it disappears from the OI statistics. If a new buyer buys from an old buyer (who is selling out), total OI remains unchanged. If a new seller buys back, or covers from a new seller entering the market, OI also does not change. The old bear had to buy to cover, with the other side of this transaction being a sell by the new bear.
Incorrect
OI numbers go up or down based on how many new traders are entering the market and how many old traders are leaving. OI goes up by one when one new buyer and one new seller enter the market. This act creates one new contract. OI goes down by one when a trader who is long closing out one contract with someone who is already short. Because this contract is now closed out, it disappears from the OI statistics. If a new buyer buys from an old buyer (who is selling out), total OI remains unchanged. If a new seller buys back, or covers from a new seller entering the market, OI also does not change. The old bear had to buy to cover, with the other side of this transaction being a sell by the new bear.
Question 2 of 10
2. Question
Which of the following statements is/are false for open interest?
I. OI is simply the number of contracts outstanding—the total number held by buyers or (not and) sold short by sellers on any given day.
II. The OI number gives you the total number of longs and the total number of shorts because the short interest is not equal to the long interest.
III. Each long is willing to either accept delivery of a particular commodity or offset a contract(s) sometime before the expiration date.
IV. Each short is willing to either make a delivery or offset a contract(s) after the expiration date.
Correct
Open interest
Open interest (OI) analysis is a powerful trading tool that futures traders use. (Stock traders do not have access to this tool.) OI is simply the number of contracts outstanding—the total number held by buyers or (not and) sold short by sellers on any given day. The OI number gives you the total number of longs and the total number of shorts because, unlike in stocks, in futures, the short interest is always equal to the long interest. Each long is willing to either accept delivery of a particular commodity or offset a contract(s) sometime before the expiration date. Each short is willing to either make a delivery or offset a contract(s) before the expiration date. With this in mind, you can plainly see that OI is a measurement of the willingness of longs and shorts to maintain their opposing positions in the marketplace. It is a quantitative measurement of this difference of opinion.
Incorrect
Open interest
Open interest (OI) analysis is a powerful trading tool that futures traders use. (Stock traders do not have access to this tool.) OI is simply the number of contracts outstanding—the total number held by buyers or (not and) sold short by sellers on any given day. The OI number gives you the total number of longs and the total number of shorts because, unlike in stocks, in futures, the short interest is always equal to the long interest. Each long is willing to either accept delivery of a particular commodity or offset a contract(s) sometime before the expiration date. Each short is willing to either make a delivery or offset a contract(s) before the expiration date. With this in mind, you can plainly see that OI is a measurement of the willingness of longs and shorts to maintain their opposing positions in the marketplace. It is a quantitative measurement of this difference of opinion.
Question 3 of 10
3. Question
If heating oil has a total OI of 10,000 contracts, and the next day it rises to 10,100. Then which of the following statement is/are true about OI?
I. This means 100 new contracts were created by 10 new buyers and 10 new sellers were added.
II. 10 new net buyers and sellers of 10 contracts each.
III. The market has 10,000 contracts’ worth of shorts and 10,100 contracts’ worth of longs at the end of the day.
IV. The short and long interests are always the same on any particular day.
Correct
Incorrect
Question 4 of 10
4. Question
What does the size of open interest predict?
I. The size of the OI reflects the intensity of participants’ willingness to sell positions.
II. When we think about the ramifications of changes in OI, we must think about it in the context of which way the market is moving at the time.
III. An increase in OI shows a willingness on the part of the participants to enlarge their commitments.
IV. If the market is moving lower and OI is increasing, we can assume that some of the hurt longs have left the party, but they are being replaced by new longs, and many existing longs are still there.
Correct
OI statistics is a valuable tool that you can use to predict price trends and reversals. The size of the OI reflects the intensity of participants’ willingness to
hold positions. Whenever prices move, someone wins and someone loses—a zero-sum game. This is important to remember because when you think about the ramifications of changes in OI, you must think about it in the context of which way the market is moving at the time. An increase in OI shows a willingness on the part of the participants to enlarge their commitments. Let’s say the market is moving lower and OI is increasing. You can assume that some of the hurt longs have left the party, but they are being replaced by new longs, and many existing longs are still there. If they were liquidating en masse, OI would drop. Likewise, if the short holders were primarily taking profits and leaving the party, OI would also drop. However, because the OI is increasing and the price is dropping, you can assume that the bulls are losing money, but many must be hanging in there or they are recruiting buddies at an increasing rate. What are the ramifications of an OI decline? It is a sign that the losers are in a liquidation phase (it doesn’t matter which way the market is moving), the winners are cashing in, and new players are not entering in sufficient numbers to replace them.
Incorrect
OI statistics is a valuable tool that you can use to predict price trends and reversals. The size of the OI reflects the intensity of participants’ willingness to
hold positions. Whenever prices move, someone wins and someone loses—a zero-sum game. This is important to remember because when you think about the ramifications of changes in OI, you must think about it in the context of which way the market is moving at the time. An increase in OI shows a willingness on the part of the participants to enlarge their commitments. Let’s say the market is moving lower and OI is increasing. You can assume that some of the hurt longs have left the party, but they are being replaced by new longs, and many existing longs are still there. If they were liquidating en masse, OI would drop. Likewise, if the short holders were primarily taking profits and leaving the party, OI would also drop. However, because the OI is increasing and the price is dropping, you can assume that the bulls are losing money, but many must be hanging in there or they are recruiting buddies at an increasing rate. What are the ramifications of an OI decline? It is a sign that the losers are in a liquidation phase (it doesn’t matter which way the market is moving), the winners are cashing in, and new players are not entering in sufficient numbers to replace them.
Question 5 of 10
5. Question
What is/are the ramifications of an OI decline?
I. It is a sign that the losers are in a liquidation phase.
II. The market can move in any direction.
III. The winners are cashing in, and new players are not entering in sufficient numbers to replace them.
IV. The bulls are losing money, but many must be hanging in there or they are recruiting buddies at an increasing rate.
Correct
An increase in OI shows a willingness on the part of the participants to enlarge their commitments. Let’s say the market is moving lower and OI is increasing. You can assume that some of the hurt longs have left the party, but they are being replaced by new longs, and many existing longs are still there. If they were liquidating en masse, OI would drop. Likewise, if the short holders were primarily taking profits and leaving the party, OI would also drop. However, because the OI is increasing and the price is dropping, you can assume that the bulls are losing money, but many must be hanging in there or they are recruiting buddies at an increasing rate. What are the ramifications of an OI decline? It is a sign that the losers are in a liquidation phase (it doesn’t matter which way the market is moving), the winners are cashing in, and new players are not entering in sufficient numbers to replace them.
Incorrect
An increase in OI shows a willingness on the part of the participants to enlarge their commitments. Let’s say the market is moving lower and OI is increasing. You can assume that some of the hurt longs have left the party, but they are being replaced by new longs, and many existing longs are still there. If they were liquidating en masse, OI would drop. Likewise, if the short holders were primarily taking profits and leaving the party, OI would also drop. However, because the OI is increasing and the price is dropping, you can assume that the bulls are losing money, but many must be hanging in there or they are recruiting buddies at an increasing rate. What are the ramifications of an OI decline? It is a sign that the losers are in a liquidation phase (it doesn’t matter which way the market is moving), the winners are cashing in, and new players are not entering in sufficient numbers to replace them.
Question 6 of 10
6. Question
Which of the following statements indicates the market, if prices are in an uptrend and OI is rising?
I. This is a bearish sign.
II. In this situation, the bulls are in charge and are adding to positions and making the money, thus becoming more powerful.
III. Longs are being stopped out, but new sellers are taking their place.
IV. As the market continues to rise, the longs get stronger, and the shorts get weaker.
Correct
1. If prices are in an uptrend and OI is rising, this is a bullish sign In this situation, the bulls are in charge. They are adding to positions and making
the money, thus becoming more powerful. Shorts are also being stopped out, but new sellers are taking their place. As the market continues to rise, the longs get
stronger, and the shorts get weaker.
Incorrect
1. If prices are in an uptrend and OI is rising, this is a bullish sign In this situation, the bulls are in charge. They are adding to positions and making
the money, thus becoming more powerful. Shorts are also being stopped out, but new sellers are taking their place. As the market continues to rise, the longs get
stronger, and the shorts get weaker.
Question 7 of 10
7. Question
What indication is given for the market if prices are in a downtrend and OI is rising?
I. This is a bearish sign.
II. Bulls are adding to their positions, and they are the ones making money.
III. Weaker longs are possibly being stopped out and new sellers are taking their place.
IV. As the market continues to fall, the shorts get stronger, and the longs get weaker.
Correct
If prices are in a downtrend and OI is rising, this is a bearish sign
The bears are in charge of this case. They are adding to their positions, and they are the ones making money. Weaker longs are possibly being stopped out, however, new buyers are taking their place. As the market continues to fall, the shorts get stronger, and the longs get weaker. Another way to look at the first two rules is that, as long as the OI is increasing in a major trend, it will have the financing it needs to draw upon and prosper.
Incorrect
If prices are in a downtrend and OI is rising, this is a bearish sign
The bears are in charge of this case. They are adding to their positions, and they are the ones making money. Weaker longs are possibly being stopped out, however, new buyers are taking their place. As the market continues to fall, the shorts get stronger, and the longs get weaker. Another way to look at the first two rules is that, as long as the OI is increasing in a major trend, it will have the financing it needs to draw upon and prosper.
Question 8 of 10
8. Question
What indication is given, if prices are in an uptrend and OI is falling?
I. The old longs are taking profits and liquidating.
II. The old longs are replaced by some new sellers who will be strong on balance.
III. The declining OI is an indication that the weak shorts are bailing.
IV. Weak shorts will be replaced to some extent by new shorts who are stronger than the old shorts were.
Correct
If prices are in an uptrend and OI is falling, this is a bearish sign
The old longs—the smart money (I call them “smart money” because they have been right to this point)—are taking profits and liquidating. They are replaced by some new buyers who will not be as strong on balance, but the declining OI is an indication that the weak shorts are also bailing. They will be replaced to some extent by new shorts who are stronger than the old shorts were.
Incorrect
If prices are in an uptrend and OI is falling, this is a bearish sign
The old longs—the smart money (I call them “smart money” because they have been right to this point)—are taking profits and liquidating. They are replaced by some new buyers who will not be as strong on balance, but the declining OI is an indication that the weak shorts are also bailing. They will be replaced to some extent by new shorts who are stronger than the old shorts were.
Question 9 of 10
9. Question
What indication is given when prices are in a downtrend and OI is falling?
I. This is a bearish sign.
II. The smart money, the shorts, is covering or liquidating.
III. The shorts will be replaced to a degree by new longs who are not as strong as they were.
IV. The declining OI indicates that the weakened longs will be replaced by fresh longs who were not as weakened by the lower prices.
Correct
If prices are in a downtrend and OI is falling, this is a bullish sign—the mirror image of rule 3
The smart money, the shorts, is covering or liquidating. They will be replaced to a degree by new shorts who are not as strong as they were, but the declining
OI indicates that the weakened longs are largely throwing in the towel. They will be replaced by fresh longs who were not as weakened by the lower prices.
Another way to look at Rules 3 and 4 is that when the pool of losers is depleted, the party will be over.
Incorrect
If prices are in a downtrend and OI is falling, this is a bullish sign—the mirror image of rule 3
The smart money, the shorts, is covering or liquidating. They will be replaced to a degree by new shorts who are not as strong as they were, but the declining
OI indicates that the weakened longs are largely throwing in the towel. They will be replaced by fresh longs who were not as weakened by the lower prices.
Another way to look at Rules 3 and 4 is that when the pool of losers is depleted, the party will be over.
Question 10 of 10
10. Question
Which of the following statements is/are true for overbought?
I. It means the market is too high.
II. Its running out of market makers.
III. It’s about to fall of its own weight.
IV. The market is too low, running out of sellers.
Correct
Overbought basically means the market is too high in the respect that it’s running out of buyers; in effect, it’s about to fall of its own weight. Oversold is the antonym: The market is too low, running out of sellers (at least for the current time period), and ready for a bounce.
Incorrect
Overbought basically means the market is too high in the respect that it’s running out of buyers; in effect, it’s about to fall of its own weight. Oversold is the antonym: The market is too low, running out of sellers (at least for the current time period), and ready for a bounce.
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