So today’s video is going to be very interesting for all of you. The biggest reason is that you want to know which way the market can sit the next day. In the coming time the market will go up and down. You can find out by looking at the exact data. This is what you are going to learn today. So I don’t need to tell you how important this video is. Watch this video till the end and if you like it then do share it. Let’s start this video with the one and only Mr. Shubham Agarwal. Thank you Mr. Pushkar. In this video we will see the build up.
I will tell you the background of the build up theory. When I was introduced to this concept my question was a very common one which I think many people think that if someone has bought then someone has sold. Otherwise the deal is not done. So how can we say whether it is long or short? And this is a huge factor when we talk about derivative data. I have been tracking this study for at least 15 years.
And people have been doing this before this too. Actually, I was introduced to this concept by Bhavin who is in my team and looks after our content and applications. And I had the same question with him and he was following this thing for a long time. So this is a study which has been going on for 15-20 years and is still going on. I have seen very few studies in my life which go beyond the 3 year limit and this is one such strategy because the base is fundamental in this that who has the control. So I will simplify it a little bit. If there is a trade and the price has gone up, it means the price is going up and OI is going up. The basic concept of OI is that if a new buyer and a new seller come together, OI goes up. New contracts are coming into the system. So if the price is going up and even after that the buyer is continuously buying. Suppose there is an instrument which is selling for Rs. 100 and I said give it to me for Rs. 100. Now the price has gone up to Rs. 101. The seller says there is a risk in selling. Let’s not sell. If we get a good price we will sell. And the buyer says give it for 101. Then the seller says I want 102, there is a lot of risk in it. And the buyer says give it for 102. So who has the control? The control is with the buyer. So this is complete built up data. In this we have to answer a common question that who has the control? So there can be 4 scenarios. One is long build up, which means the price has increased, OI has increased. And long positions are being created. Long positions are being created in the system. Second is short. If this is developing in the system then it means the price has fallen and OI has increased. So there are shots in the system. So people are coming and selling. New positions are being sold. And they are selling at any price. Now a very big concept comes that is there any difference between profit booking and downtrend? In profit booking the market goes down. And when we say there is a downtrend in something, the market goes down. So what is the difference? So in a downtrend, people are selling out of fear. And the profit booking drove the price up. The profit booking drove the price down. And after that, basically, the uptrend can continue. Exactly. So I will summarize what you said in a few words. Like pullbacks.
So profit booking is temporary. Whereas, downtrend is permanent. According to Newton’s law, everything will stay there until something comes and shakes it up. So the same thing applies there as well. Downtrend will stay there until some reverse force comes and shakes it up. Which means contra data is being created. So pullbacks, as a rule, I have followed it in my life that I never trade pullbacks. You will not trade pullbacks. But you trade after pullbacks. I will trade after pullbacks.
But I will never trade pullbacks. If you say in a bullish market, go and take a short because it is falling today, I would not take it. Or if you say in a bearish market, go and buy it because it is going to bounce back, I would not take it. You are not going against the trend and you should do that. According to me, it is the same. All right. So this is the whole theory. Now these two terminologies come that if the open interest is falling in the market, it means that the old contracts are expiring. And the price is going down. I mean what is this? People who used to buy it earlier are now squaring off. So long unwinding. We call it long unwinding. All right. And the last, fourth, fourth one for you guys, long unwinding simply means profit booking. Now they will show you. All right. And the last, fourth terminology is short covering. Which means first I shorted, after that, now I feel a lot of money is made or not made, whatever it is, I want to short cut. So because of this, the price is rising and the open interest is falling. This is called short covering. So these are the four terminologies. Okay. Many people must have read this on business media, social media, books etc.