Never Use Average Volume Over Average Rupee Turnover (ART)
Seeing volume numbers doesn't hold any value in my trading
First let’s understand difference between average rupee turnover and average volume.
ART = SMA(VOLUME×PRICE, 20), here SMA with period 20.
AV = SMA(VOLUME, 20), here price is not considered for calculation as compared to above value.
Considering an example, we will understand why multiplying the price with average volume is very important to understand the actual picture of the stock in terms of liquidity.
‘X’ stock has average volume of 100 and ‘Y’ as average volume of 500. Now based on this you will say ‘Y’ is more liquid than ‘X’ because number of shares traded on an average for ‘Y’ is more than ‘X’. This is exactly what most you were doing till date.
Now we will consider price of the stock, and we will understand in terms of money flow, ‘X’ price is 10,000 per share and ‘Y’ as 1000 rupees per share so if we multiply per share cost by average volume, we get average rupees turnover that is,
‘X’ = 10,000 × 100 = 10,00,000 Rs
‘Y’ = 1000 × 500 = 5,00,000 Rs
Now if we compare both stock X & Y based on money flow that is in currency terms, ‘X’ is more liquid than ‘Y’ that is 10L for ‘X’ and 5L for ‘Y’.
That is exactly why stocks like MRF, average volume is less compared other low-priced stocks, but the actual liquidity is in MRF and its a large cap stock. Usually this is also the reason why high-priced stocks seem illiquid if you see their volumes over low priced stocks.
Hence never compare AV of stocks as it does not mean anything instead compare its ART.
Next time if you use just average volume instead of average rupee turnover for comparing stocks liquidity and coming to conclusion then it's like buying apple and apple juice both for 1KG.
Personally I don't even use ART but instead use something called as VP - Volume × Price even over ART that is because I simply don't like fact that for calculating it, period is considered in the first place which i feel is backdated data more like old data which has no relevance in that give point in market hence current volume × price is what is my liquidity criteria in all my scanners VP > 20 Cr. This works best for me because my scanning process is performed in the live market unlike most who do EOD.