It can often feel like building an investment portfolio is a lot like learning a new language. You’re not just moving in and out of positions at random, you’re using a variety of complex strategies to determine which investments make sense for you, and when you should hit the “buy” or “sell” button. One strategy that you may use to make your purchasing decision is to assess something called relative volume.
Although this term might sound a little confusing at first, it’s basically one of many indicators that specialists can look at when examining the marketplace. The term RVOL (relative volume) essentially shows what the current volume the stock is trading at looks like compared to past volume and investment strategies. It basically gives you an overview of how relevant, current, and active the security that you’re looking at is.
Why Does Relative Volume Matter?
Many experts believe that with the right strategy, you can use relative volume by visiting here to predict home run trades. That’s because the higher the RVOL is, the more likely it is that you’re looking at a good opportunity. Although there are outliers to the trends, it’s worth noting that high levels of liquidity and volume are often good things for investors and trading enthusiasts. Stocks that are high in volume can trade better, which means that you’re more likely to be able to sell an asset when you decide you want to move out of a position fast.
This is one of the reasons why things like penny stocks can be less desirable to some people, because limited movement and mobility means that you won’t be able to leave the position as quickly as you might like. The good news for beginners in the landscape is that it’s quite easy to understand the RVOL of a security, as its often displayed as a ratio. In other words, if the number for RVOL is around 3.5, then this means that the security is moving at 3.5 times the normal amount for the specific time period. Most day traders and those keen to make regular transactions will consistently stick to options with a volume at least 2 or higher.
Finding a Recipe for Success
Ultimately, looking at things like volume and liquidity in the moment and compared to past activity is one of the many ways that experts looking to strengthen their portfolio can minimize risk and increase opportunity. The RVOL is just one of the many metrics that you might use in your strategy if you’re planning on making some short-term decisions regarding your securities. You can also watch this ratio when you’re looking for topping or bottoming in stocks.
As an investment begins to get overbought or sold, you look for a volume to get a significant spike that indicates that sellers and buyers are fighting over an important resistance or support level that may not last for long. Alongside the other insights you examine when making important decisions about where to spend your money, the relative volume can help to guide you towards opportunities that are often overlooked by other individuals in the same space. Don’t underestimate the potential of this number.