Guest Post by Dan @TrendSpider
The Volume Indicator (RVOL)
Relative Volume is calculated by taking the ratio of current volume relative to an average. It gives you a quick way to see how much volume relative to a period and which direction it is pointing in.
Features for this indicator on the TrendSpider platform:
- Customizable average (type and period)
- Customizable base level
- Area-plot chart visualization
- Full support for Multi-Timeframe Analysis
- Fully supported in TrendSpider’s Market Scanner, Strategy Tester, and Multi-Factor Alert system.
How to add it to your charts:
- Add Relative Volume (RVOL) in the Indicator Manager.
- Configure your MA (default length = 20, default type = SMA). This will calculate the moving average of the volume level in order to measure relativity against.
- Select your base level. This is the midpoint on the Relative Volume chart.
- Customize your colors.
- Apply changes.
How it works:
When added to your chart, the volume level relative to the base you select will be displayed as an area plot. The below two charts show the same RVOL indicator, with the top one’s base set to 2 and the bottom chart’s base set to 3. This moves the base level higher and causes fewer spikes. This is a great way to measure volume relative to a past period average (in this case a 20-period simple average.)
When you enable Multi-Timeframe Analysis with RVOL, you will see something like this chart (below.) Here you can see there are now two bands on the chart instead of one. The dashed band is from the 1 hour timeframe, while the solid bands are from the 10 minute timeframe. This allows you to look at relative volume across multiple timeframes in a single indicator.
How to use it in the Market Scanner, Strategy Tester and Multi-Factor Alert scripts:
Using the Market Scanner, you can search an index, say the Russell 2000, for stocks with high relative volume. In this example (below), we do exactly that, by searching the R2K for any stock that has a relative volume over 3. This yields stocks that have an abnormally large spike in volume occurring on them. This is where TrendSpider’s unique “Current Candle” option comes in. Using this option, you can scan for conditions while they are happening, on any timeframe, instead of waiting for the candle to close as with many other scanning tools. This capability is useful when using RVOL in scanners because you can catch the move as it is starting instead of when it is ending.
Using RVOL in scanners with multiple time periods and other indicators
RVOL can be used in combination with other indicators in your Scanning, Backtesting and Alerting conditions, in this example, we use the two separate timeframes for RVOL (1 hour and Daily) as well as a 90 minute MACD.
Below is an example of the SPY chart with RVOL spikes indicating lows in price near the sell offs on the chart before a bounce and recovery.
Chart courtesy of TrendSpider.com