Relative volume explained for day traders

Relative volume compares current volume with a baseline of normal volume for the same stock. An RVOL of 1 means the stock is trading exactly as much as usual. An RVOL of 4 means four times the usual amount. An RVOL of 0.5 means half.

Traders care about it because unusual volume is often the footprint of new information or new participants. Earnings, a contract, an analyst action, a sector move or a large fund repositioning all tend to show up as volume first. Price can move on a few orders; sustained high relative volume means many orders.

• RVOL above 1 means more activity than normal.
• RVOL near 1 means a normal day for that stock.
• RVOL below 1 means a quiet day, which often means wider ranges are less likely.

There are two common ways to compute relative volume, and they give very different answers early in the session.

Daily RVOL divides today's volume so far by the average full day volume. At 9:45 ET almost every stock looks quiet on this measure, because only 15 minutes of the session have passed. It becomes useful only late in the day.

Time of day RVOL, sometimes called cumulative or intraday RVOL, divides today's volume so far by the average volume traded by the same time of day over a lookback period, typically the last 10 or 20 sessions. At 9:45 ET it compares today's first 15 minutes with the average first 15 minutes. This is the version most day traders want, because it is meaningful from the first minute.

DayTradingSoftware calculates time of day relative volume in the stock scanner, including in premarket, so the number at 8:15 ET compares like with like.

Take a $14 stock with no news yesterday that reports earnings before the open. Over the last 20 sessions it traded on average 1.2 million shares per day, and on average 180,000 shares by 10:00 ET.

Today at 10:00 ET it has traded 1.08 million shares.

• Daily RVOL at 10:00 ET is 1.08 million divided by 1.2 million, which is 0.9. On this measure the stock looks normal.
• Time of day RVOL at 10:00 ET is 1.08 million divided by 180,000, which is 6. On this measure the stock is trading six times its usual pace.

The second number is the one that reflects what is happening. That gap between the two measures is why a daily RVOL filter set to 2 misses most morning movers, and why traders who compare scanners should check which version a scanner uses.

Right after 9:30 ET the opening auction prints a large block of volume at once. On a stock whose average volume by 9:31 ET is small, that single print can push time of day RVOL to 20 or 30 for a minute or two before it settles. The same happens in premarket, where average volume by 7:00 ET might be only a few thousand shares.

Two practical rules help.

• Combine RVOL with a minimum absolute volume, for example at least 100,000 shares, so tiny baselines do not produce huge ratios.
• Watch how RVOL evolves over the first 15 minutes instead of reacting to the first print.

There is no universal correct threshold. The values below are reasonable starting points that many traders use, and they should be tuned against your own results.

• Small cap momentum. RVOL of 5 or more by 9:45 ET, with a minimum of 500,000 shares traded.
• Large cap earnings gaps. RVOL of 2 to 3 is often already significant on a stock with heavy normal volume.
• Premarket gappers. Premarket RVOL of 3 or more by 8:30 ET, combined with the gap filters described in how to find premarket gappers.
• Afternoon continuation. RVOL that stays above 2 after 1:00 ET suggests interest that lasted beyond the open.

In the momentum scanner you can combine RVOL with change in the last 1 or 5 minutes, which helps separate a stock that had a big open from one that is moving again right now.

RVOL is a context filter, not a signal by itself. High relative volume on a stock that is going nowhere can mean heavy two way trading at a level, which is information too. High relative volume with a range expansion and a hold above VWAP describes a different situation from high relative volume with repeated failures at the premarket high.

• Pair RVOL with the day's range compared with ATR.
• Pair RVOL with the position relative to VWAP.
• Pair RVOL with the catalyst; volume without news can fade quickly.

You cannot watch 300 charts. A relative volume alert removes most of that work. Set an alert for any stock on your list that crosses RVOL 4, or for any stock in a saved scan whose RVOL doubles in 15 minutes. Trading alerts in DayTradingSoftware support an RVOL condition and a VWAP cross condition, and they reach you in the browser, by email or by push.

Keep alerts few and specific. Fifty alerts that fire every few minutes train you to ignore them.

The most useful question is not what RVOL other traders use but which RVOL range your own trades do best in. Many traders find that their results differ a lot between, say, RVOL 3 to 5 and RVOL above 10, and they only discover it after looking at their journal.

Every entry in the trading journal stores relative volume, gap, float and time at the moment of entry. Analytics then split your expectancy and profit factor by RVOL bucket, so you can see whether a higher threshold helps or simply reduces the number of trades. You can test a threshold change on historical intraday data in backtesting software before changing your live scan.

Past performance and backtests do not guarantee future results. Trading involves substantial risk of loss. High relative volume often comes with wider ranges, faster moves and slippage. Size positions with the position size calculator and decide where your trade is wrong before you enter. Nothing in this article is a recommendation to buy or sell any security.