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VR Volume Ratio

Volume is the leading indicator of stock prices, so it is often the basis for investors to decide whether to buy or sell. Volume ratio (VR) can be used to determine the trend of stock market buying and selling. Investors can also use the volume to judge the overbought or oversold condition of the stock market. 

1. Definition

The basic principles, like volume is the leading indicator of stock prices, stock prices rise while volume increases, stock prices fall while volume decreases, stock price and volume change in the same direction, and stock price and volume change in opposite directions are constant. From the analysis of these principles, investors can judge the supply and demand of funds and the strength of buying and selling momentum. The VR is the ratio of the sum of the trading volume on the days when the stock price rose to the sum of the trading volume on the days when the stock price fell, divided by the two, which can be used to analyze the possibility of the stock price continuing to rise or fall. 

2. Formula

LC is yesterday's closing price;

TH is the cumulative volume of days when the stock price rose in N days;

TL is the cumulative volume on days when the stock price fell in N days;

TQ is the cumulative volume on days with the stock price unchanged in N days;

VR = 100 * (TH * 2 + TQ) / (TL * 2 + TQ);

VRMA = M-day Average of VR;

3. How to apply

1) When the VR normal distribution is between 80% and 350%, the stock price fluctuates less.

2) When the VR is below 60%, it is a severe oversold condition. There is a chance of bottoming out, and investors can buy now.

3) VR above 350% means it is an overbought condition. Investors may lower or gradually liquidate their holdings.

4) If the VR rises to 550%-700%, the buyer's buying power enters a period of decline and easily tops out.

5) If the VR is lower than 30% to 40%, the seller's selling profit will enter the shrinkage period, making it easy to bottom out and rebound.

4. Features

1) VR is the leading indicator of volume, the so-called "volume is the leading indicator of stock prices". Because the volume is the theoretical basis, the VR graphic has its authenticity and is forward-looking for analyzing the stock price trend.

2) VR moves between high-priced areas and low-priced areas, and the divergence can be used as a signal to judge the stock market reversal. 

3) VR and momentum indicators such as AR (the popularity indicators) and BR (the willingness to buy and sell indicators) can not be synchronized with the stock price.

4) VR is quite valuable when it is in low grade. Investors should refer to other technical indicators if it is in high grade.

5) A sudden increase in volume and a straight upward surge in VR often bring about a bull market's start.

6) VR is a leading indicator that can more accurately display the high and low points of the market index than ADR.

7) Under normal circumstances, VR does not generate regular trading signals.

This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors.  It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeliness for any particular purpose of the above content.