Net Positions Heatmap

Tracks traders opening and closing positions by monitoring open interest, net longs, and net shorts

Net Positions Heatmap Summary Video

Background

Traders are always looking to add new edges to their trading. Some times the biggest edge comes from information that provides insights into what other traders are doing. With the right interpretation, Open Interest can provide insights into the behavior of other market participants.

Open Interest and Volume are similar concepts, yet starkly different. Volume is the total number of contracts that have been traded in a give time period. Open Interest (OI) is the total number of open positions held by market participants at any given time. An OI of $5000 means that there are currently $5000 in longs open and $5000 in shorts open. [see open interest for a detailed explanation].

We can also measure the increase or decrease in Open Interest at the price level to locate where positions are opening or closing. Similar to volume profile, the net positions heatmap displays OI at a specific price level during the specified time period and then makes that information easily visible to the trader. However, unlike the volume profile, the net positions heatmap takes it one step further by showing historical volume profile across all time ranges instead of just the current snapshot. Users can identify historical ranges where longs and shorts are entering and exiting positions and monitor the evolution of open interest.

Net Positions Heatmap filtered on Open Interest

Open Interest does not differentiate between market orders and limit orders, rather tells us total amount of positions opening or closing. We can dive further by dissecting Open Interest and estimating what the market orders are doing – displayed through Net Longs and Net Shorts. Net Longs and Net Shorts can be shown on the net positions heatmap as well [see net longs & shorts for a detailed explaination.]

Tool Overview

This tool can be queried on 5 different options: Exchange, Ticker, Lookback, Colorscale, and Heatmap Type.

Exchange and Coins supported:

• Bitmex - XBTUSD

Lookback refers to where the initial data starts and is currently set on last 12 hours. This means the data displayed on the heatmap is for the last 12 hours. We offer a variety of colorscales on the heatmap – it us up to the user based on their preference. There are currently 3 heatmap types: Open Interest, Net Longs, and Net Shorts.

Open Interest

The colorscale/legend shows positive and negative values. When open interest is above 0, it implies that overall, positions have opened up at this price level [i.e. dark red]. While negative open interest, implies that traders have closed out positions [i.e. blue]

Net Longs

The colorscale/legend shows positive and negative values. Net Longs are estimated from ope interest and market (taker) orders. The heatmap below can be used to estimate where traders entered or exited long positions. The colorscale selected is blackbody, so blue/white are levels where longs are opening up, while yellow/red/black are levels where longs have closed positions.

How do traders use this?

In traditional markets, traders monitor changes changes in open interest to gauge the market sentiment or strength behind trends. Open Interest can also be used to create support & resistance levels or finding trapped traders by identifying where positions have opened.

• Support/resistance: By finding price levels where large amounts have positions have opened up (either on open interest, net longs, or net shorts), traders may be able to create true support and resistance levels. When price revisits locations where larger number of positions had previously opened up, traders may exit at "breakeven" prices creating buy or sell pressure, thereby acting as support/resistance.

• Trapped Traders: Knowing what other traders are doing provides massive edge, especially when you know which side is trapped. One can estimate which side is trapped or "underwater" by finding a large increase in open positions (through open interest, net longs, or net shorts), and whether those positions are underwater or not.

• Counter-trading retail: Some traders use this to countertrade retail by waiting for a large amount of longs or shorts to open up and then counter-trading their positions.