Trading volume of a security is a direct real time market sentiment indicator. A high trading volume is an indication that the current trend is likely to continue. Now, good volume analysis needs to be combined with other technical indicators in order to make a trading decision.

Now, volume figures are not available to currency traders in view of the over the counter unregulated nature of the currency market. However, volume figures are available to stocks and futures traders. The release of the volume figure in the futures market is delayed by one trading day.

Higher trading volume steadily moves towards the closest month to delivery in the futures market. Delivery month in the futures market is the month when the contract is settled and the physical delivery of the asset takes place. Higher trading volume is good for traders as it can mean a better price.

Limit days are the days in which a particular futures contract makes a big move in a short span of time. This move is usually backed by high volume. A limit up day when the market rises to its limit in a short span of time is a sign of strength. Limit down days are usually followed by trading collars.

Now when using the volume information in your trading decisions you should check other indicators to confirm what volume is telling? You need to ask yourself whether the trend is going to change. You need to consider the key support and resistance. You also need to understand the way volume is reported in the stock market and in the futures market. Open interest is the number of active contracts of a security during a given trading period. Open interest is the most useful tool in analyzing potential trend reversals in the futures market.

Open interest only applies to futures and options contracts and not to stocks. Open interest is the number of contracts entered into during a specific period of time but have not been liquidated or settled.

Open interest gives you information about the total number of short and long contracts. Open interest varies with the number of traders entering and leaving the market. It rises by one when a new buyer and a new seller enter the market. Similarly falls by one when a buyer and a seller leave the market. Charting open interest on a daily basis in conjunction with the price charts helps you keep track of the trend in the futures market and can be a very useful tool.