What is Dollar Volume?

Volume is widely used in technical analysis and measures the number of stock shares traded on any given day. Dollar Volume adds another variable—the stock's price.

The formula for DV is the stock's price multiplied by the number of shares traded. For instance, if a stock's closing price is $20, and it traded 1,500,000 shares today, the DV = $20 x 1.5 million (volume), or $30 million.

Dollar Volume (DV) is a measure of a stock's liquidity. DV tells how much money is flowing into a stock on a daily basis. DV helps compensate for low priced stocks that trade on high volume versus high-priced stocks that trade on low volume.

DV can also be calculated with the average price of the stock over a period of days, along with the average volume over the same number of days. This allows you to compare today's dollar volume to the stock's average dollar volume, finding stocks with unusual money inflows.  

Institutional investors need high liquidity to campaign into stock positions, and DV helps determine how many shares can be bought per week/month without driving up the price. Generally, large cap stocks will have a DV of over $100 million. Tesla (Large-cap) currently has a daily DV of $30 billion, while Merck (Large-cap) trades $900 million, and Newell Brands (Mid-cap) has a DV of 70 million.

As a general rule, stocks with $100 million DV or more represent stocks with good institutional ownership, something necessary for strong uptrends. Growth stocks will usually have lower dollar volumes.

A good guideline for growth stocks is to have a minimum DV of $5 million. Higher DV is desired when shorting stocks; $25 million would be a minimum to allow sufficient liquidity for exiting shorts and reducing the risk of a sudden short squeeze.