Volume and Open Interest as Confirmation
Why Murphy treats volume as a secondary, confirming signal rather than a standalone trading tool — and what open interest adds in futures markets.
Volume — the number of shares or contracts traded in a given period — is introduced not as a standalone signal but explicitly as a secondary indicator that confirms or questions what price action is already suggesting, a role consistent with how it already appeared throughout the reversal and continuation pattern chapters earlier in this course. The general principle Murphy states is that volume should expand in the direction of the prevailing trend and contract on moves against it; when that relationship breaks down — price making new highs on shrinking volume, for instance — it is read as a warning that the move lacks the broad participation needed to sustain itself.
For futures markets specifically, the book adds open interest — the total number of outstanding contracts that have not yet been closed out — as a second confirming measure alongside volume. Rising open interest alongside a price trend suggests new money is entering and supporting that trend; open interest declining while price continues to trend is read as a sign the move is being driven by existing positions unwinding rather than fresh conviction, and is treated as a less durable move.
| Price action | Volume behavior | Read |
|---|---|---|
| New highs | Expanding volume | Healthy, well-supported advance |
| New highs | Shrinking volume | Warning sign — advance lacks broad participation |
| Pullback within an uptrend | Shrinking volume | Normal, healthy correction |
| Pullback within an uptrend | Expanding volume | Warning sign — selling pressure may be more than a pause |
The recurring practical use of volume across the book is as a discipline against over-trusting a chart shape in isolation. A pattern that looks textbook-perfect on price alone but shows contradictory volume — rising into a topping pattern's final peak, or shrinking on a breakout that should show conviction — is presented as a lower-confidence signal worth waiting on for further confirmation, rather than acted on purely because the shape matches a name from a chart pattern catalog.
- Volume is a secondary, confirming tool, not a standalone signal — it should expand with the trend and contract against it.
- Divergence between price and volume (new highs on shrinking volume, for example) is a warning the move may lack sustaining participation.
- In futures markets, open interest adds a second confirming measure — rising open interest with a trend suggests fresh money, falling open interest suggests existing positions unwinding.