Master the "Anomalous Activity" detector. Learn how to compare current trading volume against historical averages to spot high-conviction market events.
Relative Volume (RVOL) is a ratio that compares the current trading volume of an asset to its average volume over a specific historical period. Unlike absolute volume, which just tells you "how many shares traded," RVOL tells you if that volume is abnormal. A volume spike of 1 million shares might be massive for a low-cap stock but insignificant for a mega-cap stock; RVOL provides the necessary context to make sense of this.
RVOL is an essential filter for breakout traders. Trading a breakout when RVOL is below 1.0 is extremely dangerous, as it lacks institutional conviction. Trading a breakout when RVOL is above 2.0 or 3.0 provides high-conviction confirmation that a real, news-driven move is taking place.
Extremely high RVOL usually signals a major news event (like earnings or a buyout). Be cautious; these situations are highly volatile and prone to sudden, violent whipsaws.
Most traders use a 10-day or 20-day Simple Moving Average of volume as their baseline for calculating RVOL.