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How to use relative volume to get profits in trading

Charlie Brooks

Feb 18, 2022 11:01

What is Relative Volume?

Relative Volume (or RVOL) is a quantity indication, suggesting it helps gauge capitalist rate of interest in a supply. RVOL compares a supply's existing quantity to its previous volume over a particular duration. It is kind of like a radar for exactly how "in-play" a supply is.

The higher the relative volume is the more in play it is because more traders are seeing as well as trading it. As investors, this is what we want. Stocks that have a lot of volume have more liquidity and tend to trade far better than supplies with low relative volume. The RVOL is displayed as a ratio.

The relative volume mirrors the number of shares traded of a particular stock. All charting systems have details regarding the currently traded volume readily available, and also usually the trading quantity is envisioned listed below the chart with pricing action.

One of the most prominent relative volume indicators are:

Current day volume vs. previous day volume

Present day quantity vs. 5-day average trading volume

Present day volume vs. 10-day typical trading volume

Allow's state the current day trading quantity for a small-cap supply is 5,000,000 shares at 10 AM EST in the morning, as well as the other day's trading volume was 500,000 shares in overall. The relative volume is 10:1. In the listed here, the leading supply HZAC has 94.83 times higher quantity than common.

When all this falls in line with each other we have a dish for allegorical relocations that can make trading months and often even years. This is additionally a great statistics to look for potential bottoming or topping in supplies. As a stock is oversold or overbought we intend to seek quantity to get a spike in relative volume which would certainly show that customers as well as vendors are fighting over an important assistance or resistance degree and will likely turn around.

What’s an excellent relative volume ratio?

Throughout the premarket, I'm trying to find supplies that have traded at the very least their typical quantity. By the time the marketplace opens, I have actually tightened it to supplies that have a relative volume ratio of at least 4.

That indicates I'm trying to find stocks that have traded a minimum of 4 times their average volume. If they have actually revolved their float already, all the better.

What’s a low relative volume ratio?

Anything less than 1-- for momentum day trading-- just isn't worth my time. If a supply's ordinary quantity is 100,000 shares, I want it to trade at the very least 100,000 shares in the premarket. A relative volume proportion of 1 is still on the reduced side. I'm looking for a minimum of 3 or 4.

Why Do You Use Relative Volume?

Every relocation of the marketplace happens due to supply as well as demand. Volume is the number of shares traded. Without volume, price does not relocate much. Relative volume tells us the amount of shares traded in relation to how many shares are usually traded. It can be a terrific sign that uncommon price action may get on the means.

In fact, in many trading strategies, relative volume plays an essential duty. High relative volume around an outbreak, for instance, is normally an indication that the price motion is supported by the market. The same breakout with reduced relative trading volume could be extra suspect and investors would be wary of a reversal.

Sure, there are low-volume outbreaks that bone up. Those can be fascinating to a position trader. Yet as day traders, we like our supplies to be unpredictable. When you obtain uncommon quantities, you obtain unusual relocations. Outbreak investors as well as momentum investors try to find large volume moves to inspire a trade. As a day trader, you wish to be where the party is.

In order for a supply to be in play, it needs to be fluid. The even more liquidity, the much better. That obtains more eyes on the stock and more gamers in the game. When a supply has what I like to call outrageous quantity, that's when you get beast steps and also parabolic runs.

Some traders use relative volume to make a decision which supplies they're going to watch. It can be handy.


Let's say you establish your scanners to discover stocks that are trading one million shares in a day. At the end of the day you run your check and generate 1,000 supplies. That will not assist you discover a profession. Most of those stocks might have a typical volume of more than a million shares. So if volume is your only standard, you'll end up finding a lot of supplies that aren't trading extraordinary quantities. With ordinary volume, you get average moves. So a great deal of investors like to utilize a relative volume indicator to aid discover potential trades.

Relative volume can additionally work in analyzing energy supplies. If a supply is marching steadily upward with boosting volume, that's an excellent sign that the energy will proceed. On the other hand, declining relative volume also as the rate continues to enhance can be a sign of slowing down energy as well as an approaching turnaround.

How to Compute Relative Volume 

Relative volume is a powerful measurement and is utilized to recognize whether volume flows are boosting or decreasing. Nevertheless, relative volume is seldom used by newbies or retail traders. The major reasons for this are:

  • It takes a while to recognize.

  • It's not commonly available on retail or brokerage firm platforms.

  • The intraday quantity circulation contour makes it hard to determine the ratio in real time. We will review this afterward.

  • Improvements in computing power, information removal, and evaluation have made this calculation possible only in current times.

One of the most fundamental way to determine relative volume is to divide the day's volume by the average quantity

Relative volume = Present volume/ Average volume..

What you end up with is a proportion. Many relative volume scanners share this proportion as a single number.

Relative Volume Instance

On January 14, Plug Power Inc. (NASDAQ: PLUG) traded 89.19 million shares. Its 60-day average volume is-- as well as remember this is a number that alters-- 37.6 million.

So, we take 89.19 million and also divide by 37.6 million, and we get 2.372 and also adjustment. We can round it off even better. What is the stock's relative volume? 2.37.

Some traders use the intraday volume curve in their relative volume calculations.

You take the quantity from a time of day and compare it to the presumed volume based on the average. I know, that's a great deal. Let me break it down.

Let's claim typically any type of stock professions 35% of its quantity by 10:30 a.m. In this example, the supply's 60-day typical volume is 100,000 shares. On any given day, at 10:30 a.m., that supply must have traded around 35,000 shares (100,000 x 0.35 = 35,000).

Allow's state this company knows how to play the game. You see, it puts out a news release at 8:30 a.m., as well as the stock has some attention. By 10:30 a.m, the supply had actually traded 350,000 shares.

The relative volume in this instance would certainly be 10 at 10:30 a.m. That's 350,000 at 10:30 a.m. divided by the presumed ordinary quantity at 10:30 a.m.

Trading a supply with reduced quantity can make it difficult to cut losses promptly. Less customers make it tougher to offer. You could wind up needing to strike the bid just to go out. And that can leave you with a bigger loss than you planned.

Ignore looking for the following Microsoft or Tesla in penny stocks. Do not trade reduced quantity stocks thinking you have actually found the following large innovation or item. The opportunities of discovering an obscure gem are slim. The majority of these businesses stop working.

Stick to trading supplies that are in play. Make use of the patterns that repeat in time, and take what the market offers you.

How to Utilize Relative Volume in Trading

As a day investor, you intend to trade liquid stocks with reduced infect to make sure outstanding loads. The higher the volume of a provided stock, the lower the spread in between Bid and Ask.

Little spreads are favorable completely order implementations given that the slippage, which shows the distinction in between the price you went for and also your fill rate, will certainly be much less substantial.

A high relative volume indicates that the need for the particular stock is fairly high right now. This is generally caused by a catalyst like profits statements, mergers, or other information. High relative volume also often shows up along with a huge space at the market open. That's the case when the news came out during the marketplace close.

You can utilize your supply screener to search for supplies based on the relative volume proportion you wish to see. You might additionally locate the relative volume on your trading system as an indication called RVOL. Not all trading platforms supply it. If your own doesn't, you can look for stocks using the relative volume scanner on Finviz or TradingView.

Look for supplies with high relative volume as part of your morning research study. I use my StocksToTrade scanner every morning to search for big percent gainers with high quantities.

The simplest approach to do this is to utilize the info given in premarket trading.

For example, if you concentrate on trading top moving companies, you must utilize details in premarket trading to discover the leading movers and also their quantity. For example, in the chart below, we see that Vereit is the best-performer in premarket trading as its stock has increased by greater than 400%.

We likewise discover that the ordinary quantity of the business is 2.4 million. However on this particular day, the quantity was more than 9 million. This means that the stock dive is being supported by quantity. Thus, you require to determine the reasons the stock has actually risen that much. By considering the news of the day, we discover that it increased that much because the firm finished a 1 to 5 reverse split.

How to Build a Relative Volume Scanner

Constructing a relative volume scanner in Scanz is a rapid and very easy method to identify trading opportunities. As we kept in mind, supplies with high relative volume are usually experiencing high rate volatility and also may be in the middle of a trading configuration that is strongly supported by market tasks.

The Breakouts Scanner is designed to promptly surface stocks that are trading with more than typical volume. In the Volume Breakouts food selection, simply select a duration to contrast the day's quantity against. The outcomes will certainly reveal all stocks that have a greater trading quantity in the current session compared to the typical daily quantity over a selected number of previous days.

The Breakouts Scanner includes supplies that are patronizing low outright volume by default. However, you can establish a minimal volume limit making use of the Filters menu. For most mid- and also large-cap stocks, an outright quantity limit of 500,000 shares is typically a great cutoff.

One more way to make use of the Breakouts Scanner to your advantage is to likewise search for cost outbreaks. In this way, you can quickly see what supplies are establishing new highs or lows on solid trading volume-- a sign of support from the marketplace.

How to Combine Relative Volume with Other Strategies

In a lot of periods, using RVOL on its own tends to be meaningless. As a result, we suggest a situation where you utilize other trading methods to know whether to acquire or short a property. In the case of Mesoblast that is shown below, we can utilize the concepts of Fibonacci retracement. Listed below, we see that the supply collapsed to near the 78.6% Fibonacci retracement level and after that attempted to rebound.


As a result, in the future, we know that there are two main circumstances. First, the stock may attempt to load this gap or it may try to fall listed below the retracement level. As such, we can place two pending orders that seek to take advantage of either of both. For instance, you can place a sell stop order at $2 and a buy quit at $3. If the stock drops below $2, your sell stop order will certainly come to be a market order as well as press you to productivity. If it attempts to load the void, you will certainly additionally remain in the cash.

High relative volume needs to be incorporated with a trading approach. Breakout techniques function well over volume. That can be brand-new day-to-day highs, greater highs, greater lows with bar by bar confirmation or even an outbreak within a detailed time-frame over the previous candle high. Understand relative volume as a filter to lower the number of supply icons you are taking a look at. High relative volume supplies have a tendency to be much better tradeable and workable than supplies with a reasonably low quantity proportion.

In an excellent world, you utilize the void and go technique and locate a supply with high brief interest that gaps up greatly over relative volume ratios like 3:1 that keeps energy aftermarket open by cleaning technical procedures on a candle-by-candle basis maintaining the high volume. Bear in mind that the listing of high relative volume leaders commonly associated with one of the most volatile supplies. It is important to keep an eye on the proposal and spread out on those supplies.

Final words

The Relative Volume Index is a vital concept that you should always use when trading in the economic market. The index can give you an excellent picture of what is occurring in a provided stock.

High relative volume is an essential indication to search for when thinking about which stocks to trade. It can suggest there are a lot more investors curious about the stock, which can suggest the possibility for bigger, volatile actions. That's how I can capitalize on fast spikes, take the meat of the move, as well as carry on.

However it's not a precise science. Extra quantity can also imply more marketing. That's why you must never ever depend only on one indication to establish whether a stock is a great trading possibility. Align multiple indications before you make a profession. That can help you concentrate on trading just the best configurations.

However, using it alone is not rewarding. Therefore, we suggest that you integrate it with various other economic devices.

Frequently Asked Questions About Relative Volume

1. How to Identify High Relative Volume?

High relative volume can be quickly identified by using a stock screener. My favorite is Profession Suggestions considering that I can conveniently integrate the filter for a void of at the very least +3% together with the filter of high relative volume of at the very least 3:1.

Some brokerage firm platforms enable you to code your very own relative volume indicator, and some platforms have a pre-defined indicator typically called RVOL.

2. What’s Relative Volume Standard Deviation?

Relative volume standard deviation is a variety of technical indications from straightforward relative volume. Relative volume standard deviation is calculated as the quantity proportion about the straightforward moving average.

3. What is the Relative Volume Indicator?

The Relative Volume Indicator is a device that utilizes this data to show the existing quantity of a supply contrasted to the past trading quantity of the same supply. Therefore, this index is generally created as a proportion.