Relative Volume Indicator

Relative Volume Indicator (RVOL) Explained

7 min read

What is the relative volume indicator? Well, we often come across numerous trading indicators in the trading world. Some of these indicators are considered to be more useful than others. The relative volume indicator is one good indicator that tells traders where the action will be. This indicator works like radar and tells you about how in play a specific stock or trade is.

Regarding the stock market, relative volume (RVOL) shows traders that a stock is trading “relatively higher” than its average volume. This is displayed in the form of a ratio, which means that if the trader spots a volume of 4.

Then, the stock in question trades four times the average trading volume. This tool is ideal for day traders. And most day traders use certain metrics to gauge how to play a specific stock compared to another.

RVOL Trade Ideas

One way to check relative volume in real time is using Trade Ideas – with our custom scanner you can add a column to your scan and see explosions in relative volume in real time.

What is the relative volume indicator, and how is it used? If the RVOL shows less than one on a specific trading day, it’s not in play. If the RVOL is at two or more than two, the stock is in play. The higher the RVOL, the more liquidity day traders will be willing to take.

For day traders, a stock with more volume is better traded than stocks with a low volume. Higher-volume stocks have much higher liquidity and trade better than lower-volume stocks. These are stocks that are known for making NHOD (new high of day)

The metric is also useful to watch for potential bottoming and topping of stocks. As a stock gets oversold or overbought, we want to look for volume to get a spike in its relative volume.

This would also indicate that the buyers and sellers are fighting over a critical support or resistance level, and there will also likely be a reversal.

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Why Is RVOL Important?

Why is relative volume in stocks important? Quite often, new traders tend to overlook this metric despite how important it is. The Relative volume indicator is essential for traders to know which stocks are being watched.

And it also helps you see which stocks will make the next big moves. The bottom line is relative volume is akin to unusual volume. It’s not “normal” volume or average volume. That being said it’s worth a closer look.

Stocks that are experiencing less volume, or average volume are not as interesting. They can be more unpredictable. And there are also a lot less traders watching these stocks; which can result in things like choppy price action, or sideways snooze fests.

These are usually less liquid stocks. The average market maker will also turn their nose up and walk away. 

Relative Volume Indicator Example

A good example would be the Tesla stock that was in play a couple of days ago. The higher the RVOL, the tighter the spreads and the lesser the chance of slippage.

Therefore, if you have to choose between stocks with a low trading volume and stocks with a high one, you should always watch stocks with a high one.

The RVOL tool is a simple tool that can be used to identify opportunities in the market productively. If the volume of trade is declining, then it is unlikely that the moves will extend.

Basic Calculation for Relative Volume

What is the relative volume indicator? Finding out the RVOL for any stock is very easy and can be done with this simple formula

Relative Volume = Current Volume

                             Average Volume

Crossover signals are another useful feature in the RVOL. The signal detects a spike in Volume, which causes a crossover of the user set.

As a result, a red or green dot will appear at the top, and the signals indicate whether or not it is time to buy or sell the asset.

Most investors use crossovers and other indicators to track turning points, price trends, and money flow.

Increase In Volume Early Morning

While the relative volume indicator is an excellent indicator of trading, there are quite a few things one needs to consider while conducting trades using this tool.

Typically, the first 15 minutes of the stock market opening are the busiest moments with a large volume of trades and transactions.

This is simply because the trades locked after market closure the prior day are being sold, which is why you will see a lot of activity in the early morning hours.

Of all these days, Monday is the busiest because, in some instances, announcements made over the weekend can prompt traders to make buy/sell decisions early in the morning, and this does not necessarily mean that the stock is in action.

An indicator is merely a mathematical tool and does not consider human psychology. A high RVOL on a stock in the early morning does not always mean that the stock is in action. 

Finviz Relative Volume Indicator

Finviz can scan for unusual volumes. This is very similar to relative volume, which is much higher than average. You’ll be able to manually input the ticker into your trading platform and note how high the daily volume is compared to its average volume (usually averages are taken at 10 Day average or three month averages. I like to look at both)

Final Thoughts: Relative Volume Indicator (RVOL)

It’s common trading saying that “the volume precedes the movement,” meaning that the volume will improve before a stock movement.

A price making a high or a low on a stock has a strong meaning attached, and the increasing volume for stock or crypto can signify that buyers are now willing to purchase a larger number of shares than they would have been willing to a day before.

The buy-sell decisions should, however, not be based on the movements of a solo indicator. If all the decisions are based on one indicator alone, it can quickly become a recipe for disaster, with you losing money. It doesn’t matter if you are trading penny stocks or large caps; use more than one system or tool to confirm your trade. Confluence is key! 

The volume indicator is an excellent trading strategy when combined with other indicators, like the momentum and strength indicators. The volume indicator will announce that a move will happen, and the other indicators will either confirm the prophecy or disapprove of it.

If used correctly, the RVOL can be an excellent indicator for young and experienced traders and help you bag a few successful trades.

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