Open Interest Series · Part II
Reading flow: open interest, price and CVD
Part I established what open interest counts. On its own the number is almost useless — OI going up is neither bullish nor bearish. It becomes informative the moment you pair it with the direction of price, because together they identify which kind of participant is doing the trading.
The price × OI matrix
Price up, OI up — new longs. Fresh contracts are being created into strength: money entering on the long side. This is the healthiest-looking version of a rally, and also the one that quietly builds the liquidation fuel of Part III.
Price up, OI down — short covering. Price is rising while contracts are being retired: shorts buying back to close, not new buyers arriving. Squeezes look explosive and tend to stall once the trapped positions are out, because the buying was mechanical rather than motivated.
Price down, OI up — new shorts. Contracts are being created into weakness: sellers positioning for lower. Sustained, this is genuine bearish conviction; it also stacks short liquidation levels above the market.
Price down, OI down — longs closing out. Positions are being unwound: profit-taking, capitulation or forced exits. A hard drop with OI collapsing is usually a leverage flush rather than a considered repricing — and it often marks the end of the move rather than the start of one.
The shortcut: rising OI means the move is being funded by new positions; falling OI means it is being vacated by old ones. Moves built on new positioning tend to continue; moves built on unwinding tend to exhaust.
What CVD adds
The matrix tells you whether contracts were created or destroyed. It does not tell you who was in a hurry. That is what cumulative volume delta measures.
Every trade has an aggressor: the side that crossed the spread with a market order, lifting an offer or hitting a bid. Delta is buy-aggressed volume minus sell-aggressed volume over an interval; CVD is the running total. Rising CVD means market buyers are the ones pushing; falling CVD means market sellers are.
Read together, the two answer different halves of the same question. OI says whether exposure is being added or removed. CVD says which side is paying the spread to make it happen. Neither alone identifies a move; the pair usually does.
Divergences worth noticing
CVD rising, price flat. Aggressive buying is being absorbed by resting limit sellers. Someone large is distributing into the demand — and when the buyers run out, the path of least resistance is down.
CVD falling, price flat or up. The mirror: aggressive selling is being soaked up by passive bids. Absorption in the other direction, and often the tell before a squeeze.
Spot CVD versus perp CVD. This is the one worth building a habit around. A rally driven by spot buying with perp OI barely moving is real demand for the asset. A rally driven by perp buying with OI climbing and spot CVD flat is leveraged demand for exposure — cheaper to create, and much cheaper to unwind. The second kind retraces far more often.
One caveat that keeps people honest: CVD is exchange-specific and depends on how each venue tags aggressors, so absolute levels are not comparable across platforms. The shape — the divergences, the absorption — is where the signal lives.
Part III takes the crowded-positioning case and follows it to its conclusion: what happens when high OI meets persistent funding.