Strategy Guardrails/
Open Interest Covering
TL;DR
This guardrail invalidates breakout/continuation trades if Open Interest is rapidly dropping alongside price, indicating position covering rather than new institutional involvement.
How It Works
- 1
Action Analysis: A price drop can happen for two reasons: new sellers aggressively shorting (OI goes UP), or existing buyers panic-selling (OI goes DOWN).
- 2
Liquidation Void: A move driven by OI dropping is just a liquidation cascade. There is no real conviction behind the move.
- 3
Action: If a bearish POI forms during a massive OI flush, it is invalidated. We don't want to sell into a vacuum.
A beautiful bearish FVG might form on a 15m chart during a 5% drop. But if Open Interest shed 15% during that exact candle, LiquidMind flags it as 'Long Liquidation', not 'Short Initiation'. The algorithm ignores the FVG because the move was a forced unwinding, not a start of a reliable trend.