Trading won’t work unless you know THIS Indicator

SMB Capital

78,602 views • 17 days ago Save 12 min 3 min read

Video Summary

Most traders misunderstand volume, focusing on raw numbers instead of relative volume (R-VOL), which compares current trading activity to a stock's normal volume. This crucial metric reveals the true participation behind price movements, differentiating between a breakout with genuine attention and one that's likely to fail.

Relative volume is essential for momentum trading, breakouts, and trend days. A stock breaking a key level with high R-VOL signifies increased attention and liquidity, making the move more predictable and trustworthy. The speaker developed a cumulative R-VOL histogram to track volume development intraday, helping to identify if participation is increasing, holding, fading, or absent, thereby improving trade selection and risk management.

Short Highlights

Relative Volume (R-VOL) measures current volume against a stock's normal volume.
R-VOL reveals the level of participation behind price movements.
High R-VOL indicates genuine attention and liquidity, making moves more trustworthy.
Low or absent R-VOL suggests a breakout may be fake or unsustainable.
A cumulative R-VOL histogram helps track volume development intraday.
R-VOL confirms price action, it does not replace it.
Participation is what makes a move trustworthy.

Key Details

What Relative Volume (R-VOL) Actually Tells You [00:00:41]

R-VOL compares current volume to a stock's normal volume for that specific time.
It highlights unusual volume, signaling potential news, earnings, sector interest, or institutional involvement.
Trading with no relative volume raises suspicion, as a lack of participation questions the move's validity.

"If a stock is moving with no relative volume, I'm already suspicious, because if nobody is really participating, why should I trust that move?"

Why R-VOL Makes Breakouts Cleaner [00:01:44]

R-VOL enhances technical analysis by confirming attention and liquidity.
Stocks with high R-VOL become focus names, attracting more traders to the same chart levels.
This increased participation makes reactions at key levels more predictable.
A stock "in play" has attention, range, volume, and a reason for involvement, which R-VOL helps confirm.

"But when ARVOL is high, the stock becomes a focus name. Now a lot of traders are watching the same chart."

Building a Cumulative R-VOL Histogram [00:03:20]

The cumulative R-VOL histogram tracks how today's volume develops over time compared to normal.
It helps determine if R-VOL is increasing into a move, holding after a breakout, fading, or never present.
The histogram compares current intraday volume to the 20-day and 5-day averages for that specific time of day.

"I wanted to know at any point during the day, whether today's volume was actually abnormal, compared to what that stock usually does at that same time."

Example 1: Moderna (MRNA) Monster R-Vol [00:05:53]

Moderna gapped up on a catalyst with massive volume, indicating significant market interest.
High R-VOL on the daily and intraday charts confirmed the stock had serious attention and opportunity.
R-VOL identifies stocks worth watching, while the setup dictates where to trade.

"If a stock has news and nobody shows up, I don't care how good the headline sounds."

Example 3: SpaceX False Breakout with No R-VOL [00:09:16]

SpaceX attempted a breakout above $155, but the cumulative R-VOL remained below normal.
Despite price moving higher, the lack of participation indicated the breakout was not supported by buyers.
This divergence between price and R-VOL signaled a potential failure, and the breakout ultimately failed.

"So yes, price broke the level, but participation never showed up. That's a problem because a breakout needs buyers."