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OI dropping means open contracts are being removed, but it doesn’t automatically mean price has to move hard. Price only moves when the aggressive flow is strong enough to overwhelm the passive liquidity on the other side.
For OI to decrease, an existing long and an existing short need to close against each other. For example, a short who wants to exit can place a passive limit buy order, and an existing long who also wants to exit can hit that bid with an aggressive market sell. The short is buying to cover, the long is selling to close, and since both sides are removing positions, OI decreases.
In that case, OI can bleed lower while price stays flat because both sides are closing around the same area, and the aggressive flow is being absorbed by passive flow. The market is basically letting existing positions change hands without needing to reprice aggressively.
The inverse is increasing OI with flat price. This can happen when new shorts are aggressively entering with market sells, while new longs are absorbing them with passive limit buys. Both sides are opening new positions, so OI increases, but price can stay flat because passive buyers are absorbing the aggressive sellers.
Image below isn’t the cleanest example, but it shows the general idea of how this can happen.
dipta.XBT@Dipta_trades
@goldenpocketxbt Yesterday there was a time when OI was dropping without Price moving on either side , how is that possible mate?
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