F.A.Q
Support and resistance levels evolve over time. Current levels result from past confrontations between buy and sell orders. Generally, when a contract reaches a support or resistance level, trading volume tends to increase, temporarily halting or slowing price movements.
A simple lack of counterparties can cause a historical support or resistance level to be breached and subsequently shift. It is therefore more accurate to refer to a “zone” of tension rather than to a precise price level.
The strike prices of derivatives such as options, which are fixed, also contribute to the formation of these tension zones. These prices create levels around which trading interest may concentrate, bringing price movements into the mechanism described above.
When examining open positions (open interest) across different strike prices, it may be tempting to interpret them as a directional indicator. However, for indices, this approach is of limited relevance. Apart from identifying specific areas of interest, open-interest analysis does not reveal the market’s likely direction.
Indeed, a large proportion of contract “blocks” (more than 60%) are traded over the counter (OTC). These transactions, which are not visible on listed markets, are absent from official exchange data. Even when a high level of open interest is observed at a given strike price, there is no way to determine whether it predominantly represents long or short positions, or whether those positions are associated with directional strategies or simple hedges.
The only possible exception occurs when the residual component of an OTC hedge is replicated in the listed market, but this represents only a fraction of the actual activity.
This is further complicated by arbitrage strategies involving listed derivatives, whether futures or options. Market participants frequently combine several instruments to hedge positions, exploit price discrepancies, or adjust their risk exposure. These strategies, sometimes involving simultaneous buying and selling across different markets or maturities, can inflate open interest without necessarily reflecting genuine directional conviction.
Consequently, whether derived from futures or options, open-interest data reflect neutral strategies just as much as bullish or bearish positions. Interpreting open interest in isolation therefore does not make it possible to determine the market’s underlying direction.
Imagine a fighting video game with two characters, each with a power gauge. Our indicator works on the same principle. We monitor the confrontation between two characters, a seller and a buyer, each equipped with a power gauge. The goal is to determine, within a price movement, whether an index or another asset is rising because the seller is weakening, or because increasing buyer strength is driving the move. The reverse applies to a downward movement.
The green histogram represents buyer strength, while the red histogram represents seller strength. If both remain in the upper zone, above 0, the price will tend to move at a moderate pace in the direction of the stronger side. Once one of them begins to fall behind and enters the negative zone, the price movement tends to accelerate.
For the weaker side, two levels may halt its decline. Below the second level, we consider the situation a “market anomaly.”
This indicator is a synthesis of the first one. Now you may be thinking, “Why bother with the first indicator? You might as well look directly at the synthesis.” Not so fast! You wouldn’t get the same information from it.
The synthesis consists of three curves:
A yellow curve and a green curve provide an indication of the short-term movement.
A red curve, depending on whether it is above or below 0, provides an indication of the underlying trend.
Selling pressure began to pick up again around the first level, confirmed by a divergence in its synthesis.
Deduction: The probability of the price breaking above resistance is extremely low.
Buying pressure began to pick up again around the second level, confirmed by a flattening of its synthesis.
Deduction: There is a strong probability that the price will move back above resistance.
Buying pressure and its synthesis are both in the “market anomaly” zone. The move into this zone results from an overreaction to the support level being analyzed.
Deduction: A move out of this zone is generally accompanied by high volatility.
The upper indicator (white) is an oscillator designed to measure historical volatility customized by Analysebourses (AB HV). We did not consider it appropriate to provide complex statistical indicators that would require greater attention and a steeper learning curve. Visually, an oscillator makes it possible to assess the overall level of volatility quickly and intuitively.
The lower indicator (yellow) measures the sensitivity of the first indicator.
If all these explanations bore you and you just want a simple answer to the question, “Will it go up or down?”, then there’s only one thing to look at: solution.