If the RVOL shows less than one on a specific trading day, it means that it’s not in play. If the RVOL is at two or is more than two, then the stock is in play. The higher the RVOL, the more liquidity day traders will be willing to take. The relative volume indicator can give you an idea of which stocks are in play and which ones probably won’t offer trading opportunities. As a day trader, I want to trade stocks that a lot of traders are watching and trading. When swing trading, many traders look for a relative volume of at least 2.5 to 1.
On the day of the news, it gapped and traded over 37 million shares. RVOL, or Relative Volume, is a technical indicator that measures the average volume of a security over a specific period of time, usually 10 days. RVOL is calculated by dividing the security’s current volume by its 10-day average volume. The ratio of that 10-day period would be equal to 1.0. What is the relative volume indicator and how is it used?
Relative volume for day trading explained
In the example below, that Baseline has been set to 1.3; green arrows on the price plot show price bars where RVOL is above 1.3, and red arrows show price bars where RVOL is below 1.3. In general, a higher RVOL value shows a level of commitment to the price move; the current trend will likely continue. Lower than normal RVOL demonstrates a lack of commitment, and can indicate an upcoming trend reversal or the start of a trading range.
- So a lot of traders like to use a relative volume indicator to help find potential trades.
- A low relative volume would be displayed as a negative.
- First, stocks must be above their 200-day moving average to be in an overall uptrend.
- The default of 1.2 means that the volume must be 1.2x or 120% of the average to be considered higher than usual.
It is easy to see at a glance which bars have higher or lower volume than average. The goal of Relative Volume is to determine whether volume is higher or lower than usual for that bar, which can show how committed traders are to a price move. The lower limit for this ratio is zero (where the current volume is zero). There is theoretically no upper value limit, although in practice anything over 4.0 is considered a volume spike and not a typical RVOL value. StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites.
How do you use an RVOL indicator?
Many relative volume scanners express this ratio as a single number. The most basic way to calculate relative volume is to divide the day’s volume by the average volume. We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere. We don’t care what your motivation is to get training in the stock market. If it’s money and wealth for material things, money to travel and build memories, or paying for your child’s education, it’s all good.
In other words, a stock going up in price is more likely to keep going up. It’s a common trading saying that “the volume precedes the movement,” which means that the volume will improve before a movement of the stock. This would also indicate that the buyers and sellers are fighting over a critical support or resistance level and there will also be a likely reversal.
What Is Relative Volume?
Likewise, if a stock’s RVOL measures 0.50, it has half the RVOL of the prior 10-day average. If you’re a day trader, you understand how critical it is to access trustworthy information that allows you to make quick, informed judgments. A relative volume indicator can give you insight into current market circumstances. Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading.
During premarket, I look for stocks that have traded at least their average volume. By the time the market opens, I’ve narrowed it down to stocks that have a relative volume ratio of at least 4. Then the stock in question is trading at four times the average trading volume. And most day traders use certain metrics to gauge how to play a specific stock is compared to another. So a lot of traders like to use a relative volume indicator to help find potential trades.
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Relative Volume (RVOL) measures the amount of trading activity in stock relative to its average activity level over a given period. Relative Volume can be used as a technical indicator to help identify potential breakout stocks. I use volume bars at the bottom of my charts and compare them to past volume spikes when I look back at the chart over different time frames. The relative volume indicator is a ratio of current volume compared with average volume. You can calculate relative volume by dividing the stock’s current volume by its average volume. A reading above 1.0 means that there’s more activity than usual, while a reading below 1 indicates less activity than usual.
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From there, you can set your scanner to find stocks that have a high volume ratio. Remember to use the % (percent) option and keep in mind that every 100% will equal one. That means I’m looking for stocks that have traded at least four times their average volume. If they’ve rotated their float already, all the better.
One method to add a Relative Volume/RVOL Indicator on Thinkorswim is to use the free indicators developed by Melvin E. Dickover. The first is RelativeVolumeStDev and the input parameters and plots are given so you can try it out yourself. If you want to implement a Relative Volume/RVOL indicator on Thinkorswim we will show you the best options available to you, there are a couple of free options plus a ready-made paid version.