Relative Volume

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What Is Relative Volume?

Relative Volume (RVOL) is an indicator used to help determine the amount of volume change over any timeframe. In general the higher the metric, the more trading activity and interest in this stock there is.

How to calculate RVOL

Relative Volume = Current Volume / Average Volume

How could it help you

This indicator is part of volume analysis. Active traders mainly use it as a trading signal. Do you want to trade liquid stocks with low spreads and excellent fills? If yes, you must know that a higher volume of given stock lowers the difference between Ask and Bid. 

Small spreads make slippage less significant, leading to better order execution. High RVOL indicates higher demand for a particular stock. The primary causes are catalysts, mergers, earnings announcements, or other news. Moreover, high RVOL often exists with a considerable gap. It refers to the case when word spreads during market close. 

Relative volumes are expressed in percentage values and can range from 0% (indicating no price change) to 100%. A high RVOL shows an upward trend is indicative of increased demand. Conversely, a low relative one indicates a decrease in demand indicates weaker demand for securities brokerage.

High Relative Volume is one tool you can use for confirming support and resistance levels.

Increase in volume indicates that traders are interested in certain market moves. Conversely, a drop in volume shows a lack of interest and decreases volatility.

This will tell you when there’s enough power to allow a trend to continue, eventually becoming self-sustaining. It also shows you where there might be next major turning points.

How to identify high relative volume?

The stock scanners are the best tools to track and notice high relative volume. It features a high comparable volume filter that can convert your watchlist for a specific trading day into a more manageable list. It is essential to combine the high relative volume with a trading strategy. For example, you can use the momentum or breakout strategy for high-volume. That can be new highs, daily highs, breakout within a specific time, and higher lows with bar by bar confirmation. You can consider the relative volume as a pre-filter to help to narrow your watchlist, however keep in mind that it often signals high volatility.

In conclusion, volume is a useful tool to study trends. It can be used to evaluate market strength, as well as to confirm a price move or notice an upcoming reversal. Overall, while volume is not a signal on its own, it can signal increased attention and can be used to confirm a strategy to use.