Relative volume (also known as RVOL) shows us that a stock is trading “relatively higher” than its average volume. The tecnical indicator is displayed in the form of a ratio; which means that if we see a volume of 2.
Then the stock in question is trading at Two times the average trading volume. This can help give traders an ultimate edge when day trading!
The RVOL indicator is a simple tool that can be used to identify opportunities in the markets. If the volume of a stock is declining, then it is unlikely that we will see further upside continuation.
When we see stocks with a higher (RVOL) ratio it confirms that a lot of traders are watching it and that it is “in play.” Trading stocks out of play means there will be less traders watching it and will likely result in false breakouts, choppy price action, volatility and less preditable share price moves.
Stocks that have a lot of volume have more liquidity and tend to trade better than stocks with lower relative volume.
Relative volume is a powerful measurement and is used to analyze whether volume flows are increasing or decreasing. However, relative volume is seldom used by beginners or retail traders because it’s not widely available on retail brokerage platforms.
The RVOL indicator is calculated in a relatively simple way. You just divide the current volume of an asset with the average volume in a certain period. Let us use the example of Apple that is shown below.
Example – Measuring against the 5 day average
Today’s volume for AAPL is 10 million.
5 day average daily volume is 4 million.
The relative volume ratio is 10 million/4 million = 2.5x.
This means that for today, AAPL has traded 2.5 times its 5 day average daily volume.
Relative Volume (RVOL) compares the current volume levels to average volume levels over a specified period of time, in order to identify significant trader commitment to a price move. Above average RVOL is generally associated with continuation of the trend, while below average RVOL may indicate a trend reversal or an emerging trading range.
Remember that just like volume, Relative Volume (RVOL) is used to confirm a price trend. This indicator is intended to be used in conjunction with other indicators and analysis techniques, not on its own, in order to make solid investment decisions.
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