Ready to find stocks with high relative volume?
This post contains the five steps that are working great right now.
- Understand what a high relative volume is?
- Use a Stock Screener
- Select the Volume Moving average period
- Use this AFL code to scan the stock market
- Scan the universe of stocks.
Sometimes, volume is important, considering that low-volume stocks are usually risky.
It is risky because nobody is interested in the company, and traders may have trouble exiting their trades.
The trouble usually happens when there are no sellers, and there is a need to exit a trade.
Exiting a buy trade without sellers forces a trader to take the lowest price, which is bad for the overall performance.
It is usually bad because selling a losing position happens at a lower price because there is no liquidity in the market.
When there is no liquidity, it is often difficult to close trades at a higher price.
To get higher prices, always trade stocks with enough liquidity.
What is relative volume in stocks?
Relative volume in stocks is an indicator that uses volume to find securities that are gaining interest from traders. If the current volume is higher than its previous series of volume, there is usually an opportunity to trade the security or stock.
1. Understand what is a high relative volume
Stock relative volume: The relative volume compares normal volume for the same time of the day, which is in ratio value.
For example, this video compares the first hour of trading to normal volume.
The normal volume can be an average of the first 15 minutes of trading.
The first 15 minutes of volume can be 2,000 shares, the sum of 15-minute volume and calculating the mean to get the normal volume.
We now compared the normal volume to the current volume to get the Relative Volume.
If the relative volume is above two or more, the stock is currently active.
Active stocks are excellent for short-term traders because something is happening to them.
It might be possible that a catalyst is present.
If a stock catalyst has shown during the day, the current can provide profits to short-term traders.
For example, when JP Morgan buys a stock, then the relative volume can skyrocket.
The increase can give a buy signal and may also attract many traders.
This buy signal is often important to day traders who are waiting for trading actions.
Sometimes, trading actions don’t exist even though the top volume traded stocks are flashing on the trading screens.
The top traded stocks rarely mean anything.
So, traders can avoid trading stocks that have no important actions from big institutions and catalysts.
2. Use a stock Screener
A Relative volume scanner is a scanner that can find stocks that have high volume relative to their previous average or series of volume traded. The volume period can be five to 20, depending upon the setting of the indicator.
In this post, let’s use Amibroker to find stocks with high relative volume.
It is good software and a tool on a computer to scan any stock market.
The scanner can work provided that it has a connection to real-time or End of Day Data.
Real-time data is important for scanning high relative stocks, and some services provide it for free or at a fee.
However, some traders use trading view charts for easy access and scanning.
Scanning stocks are simple if it clearly understood the basics.
To understand how to scan high relative volume stocks, let us use Amibroker.
With Amibroker, there is no need to buy expensive softwares because of its AFL formula editor.
In the AFL editor, traders can set up or edit the formula to create all kinds of scanners.
To edit a formula, right-click on an open chart and then select edit formula.
Then create a new formula.
Add a new formula if the goal is to scan the stock market.
Otherwise, there is no need to make another AFL code if one is plotting indicators in the chart.
3. Select the Volume Moving average period
The next step is to select the period to determine the normal volume.
Some traders use the first 15 minutes average volume for the high relative volume formula.
For example, add the volume of the first 15 candles on the one minute chart.
Next, divide the sum to get the mean.
Then, compare the current volume with the average volume.
There are other ways to compute the normal volume.
One example is the standard deviation.
How to calculate relative volume? To calculate relative importance, use an intraday timeframe, get the current candle volume, and compare it to the last five to 20 candles’ average volume.
The Relative Volume Formula is :
Relative Volume = Current volume/Average(previous 5 candles’ volume)
4. Use this AFL code to scan the stock market
The AFL code below will scan the stock market to find stocks with high relative volume.
The high relative volume is the ratio between current volume and 20-period moving average of volume in the previous step.
20-period MA is the mean of all volumes in the previous 20 minutes.
TimeFrameSet( in1Minute ); // switch to 1 minute frame NormalVolume=MA(V,20); // calculate the average volume of the last 20 minutes RelativeVolume=V/NormalVolume; Filter=RelativeVolume>=3;
Let’s breakdown the four lines of code above to know how it works.
TimeFrameSet( in1Minute ); // switch to 1 minute frame
The first line sets the time frame to one minute. It is important because the default time frame of Amibroker is always daily.
Because it is daily, traders should add the TimeFrameSet function.
The second and third lines of codes are the calculation of the normal volume for the selected period.
The calculation is simply to place in the Amibroker AFL editor.
Because it is simple, easy coding is simple to do, unlike many programming languages.
The last line is the code to filter/scan the universe of stocks that are in Amibroker’s database.
To scan the stocks, the trader must hit the explorer button in the analysis window.
5. Scan the universe of stocks.
To find stocks with high relative volume in Amibroker, click the Analysis button in AFL formula Editor.
Clicking the analysis button will send the code to the analysis window.
In the analysis window, set the Apply to option to All “Symbols”.
This setting will include all the stock symbols that are available in Amibroker.
In Amibroker, traders can click Explore button to scan the market once.
However, there is an option to scan stocks every five minutes.
Scanning every five minutes is only helpful if Amibroker has real-time data.
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