Relative Volume (often times called RVOL) is an indicator that tells traders how current volume is compared to past trading volumes over a given period. It is kind of a like a radar for how “in-play” a stock is. The higher the relative volume is the more in play it is because more traders are watching and trading it. This is something that I look for in all the stocks I am trading and is an important indicator to keep tabs on.
Relative Volume is displayed as a ratio. So if it is showing 3.5 relative volume, that means it is trading at 3.5 times its normal volume. As day traders we like to see RVOL at 2 or higher with a positive catalyst, low float and ideally a higher short interest. When all of this falls in line together we have a recipe for parabolic moves that can make trading months and sometimes even years.
This is also a good metric to watch for potential bottoming or topping in stocks. As a stock gets oversold or overbought we want to look for volume to get a spike in relative volume which would indicate that buyers and seller are fighting over an important support or resistance level and will likely reverse.
Warrior Trading Pro Tip
RVOL is often overlooked, especially by new traders, but it is important to understand this metric and to add it into your morning preparation. Knowing what other traders are watching and trading is key to understanding what stocks are in play and which ones will likely make big moves.
A good example is in the 15-min chart above of GLBS. They were in play the last couple of days as you can see by the increased volume compared to previous days. This is what we like to see in a stock to confirm 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 or choppy price action with less predictable moves.
Also, with higher relative volume you will have more liquidity in the stock which will tighten spreads and allow you to trade with more size without with out a ton of slippage.
Relative Volume Trading Strategy
Relative volume is a great indicator to keep a close eye on, but like most indicators it works best in conjunction with other indicators and on different time frames. For example, I like to see how the RVOL is compared to previous trading days but I also like to check it versus opening drives and second leg drives to compare strength.
In the 1-minute chart of NVDA you will see that it had a very strong opening drive. After a strong move like that I like to see it have a pull back to support or the VWAP on lighter volume before making another leg up.
In this case, it came back to support at $97.75 where it consolidated in a tight wedge pattern before breaking out to the upside. The key to this strategy is on the breakout that is marked by the green arrow.
This is where you would look to get long but only if volume confirms the move. You can see at the bottom of the chart that volume spiked when it broke out of the pattern and held above the resistance line. This is a great indication that buyers want to take prices higher with a great risk/reward entry.