What Does Volume Ratio Mean?

This note discusses another volume-related indicator: the Volume Ratio.

The Volume Ratio is a metric used to assess relative trading activity. It calculates the average trading volume per minute after the market opens and compares it to the average trading volume per minute over the past five trading days.

The formula is typically as follows:
Volume Ratio = (Current Trading Volume (lots) / Cumulative Market Opening Time (minutes)) / Average Minute Trading Volume Over the Past 5 Days

• When the Volume Ratio is between 0.8x and 1.5x, it indicates that trading volume is within a normal range.

• A Volume Ratio between 1.5x and 2.5x suggests moderate volume expansion. If the stock price rises steadily in tandem, it signals a relatively stable upward trend, and investors may consider holding their positions. Conversely, if the stock price declines, it may indicate that the downtrend will persist in the short term, and a stop-loss exit is advisable based on volume analysis.

• A Volume Ratio of 2.5x to 5x indicates significant volume expansion. If the stock price simultaneously breaks through key support or resistance levels, the breakout is highly reliable, and traders may consider taking action accordingly.

• A Volume Ratio of 5x to 10x represents extreme volume expansion. If this occurs after a stock has been in a prolonged low position, it usually signals substantial future upside potential, making it a bullish signal. However, if the stock has already risen significantly before such a surge in volume, caution is warranted.

• For stocks with a Volume Ratio exceeding 10x, a contrarian approach is often advisable. In an uptrend, this typically signals a high probability of peaking—even if not a full reversal, at least an extended period of adjustment. Conversely, if a stock has been in a prolonged downtrend and suddenly exhibits an extremely high Volume Ratio, it usually indicates that the downward momentum has been fully exhausted at the current price level.

• A Volume Ratio surpassing 20x reflects extreme volume expansion, often serving as a strong reversal signal. Particularly after a sustained rally, if trading volume spikes sharply while the stock price stagnates, it strongly suggests an impending end to the uptrend. On the other hand, extreme volume expansion during a downtrend may present a good opportunity to buy at a low.

• A Volume Ratio below 0.5x indicates significantly subdued market activity, but it may also signal potential opportunities. Stocks that can hit new highs on low volume are often tightly controlled by market makers, who can drive prices higher with minimal volume—reflecting strong control and ruling out the possibility of a pump-and-dump scheme.

• For stocks undergoing low-volume corrections, especially after a clear high-volume breakout of a key resistance level followed by a low-volume pullback, they often present rare buying opportunities.

• Additionally, if the Volume Ratio is below 1x during a limit-up (涨停板), it suggests strong upward momentum, with a high likelihood of another limit-up the next day. Conversely, during a limit-down (跌停板), a lower Volume Ratio indicates that downward momentum has not been fully exhausted, implying further potential declines.