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I am using docker-compose to set up an application. using orientdb database which uses file storage to save data. When i scale database service all the instances are pointing to same named volume "db_data".

services:
 orient-db:
 image: orientdb:3.0.1
 entrypoint: /orientdb/bin/server.sh -Ddistributed=true
 environment:
 ORIENTDB_ROOT_PASSWORD: root
 volumes:
 - db_data:/orientdb/databases
volumes:
 db_data:

What i want to do is point /orientdb/databases location of the replica to new directory for each new instance, something like this

 services:
 orient-db:
 image: orientdb:3.0.1
 entrypoint: /orientdb/bin/server.sh -Ddistributed=true
 environment:
 ORIENTDB_ROOT_PASSWORD: root
 volumes:
 - db_data/$instance_number:/orientdb/databases
volumes:
 db_data:

but it does not create a new folder for each replica when i do

docker-compose up --scale orient-db=3 orient-db

I don't think what you want to do in the way you want to achieve it is possible. Instead I would define multiple services based on the orientdb image.

services:
 orient-db-1:
 image: orientdb:3.0.1
 entrypoint: /orientdb/bin/server.sh -Ddistributed=true
 environment:
 ORIENTDB_ROOT_PASSWORD: root
 volumes:
 - /data/orient_db/1/=/orientdb/databases

 orient-db-2:
 image: orientdb:3.0.1
 entrypoint: /orientdb/bin/server.sh -Ddistributed=true
 environment:
 ORIENTDB_ROOT_PASSWORD: root
 volumes:
 - /data/orient_db/2/=/orientdb/databases

 orient-db-3:
 image: orientdb:3.0.1
 entrypoint: /orientdb/bin/server.sh -Ddistributed=true
 environment:
 ORIENTDB_ROOT_PASSWORD: root
 volumes:
 - /data/orient_db/3/=/orientdb/databases

If you want to scale, then I would recommend you using the distributed system that orientdb incorporates https://orientdb.com/docs/2.1.x/Distributed-Architecture.html for which I would also add an orchestrator. Docker swarm is pretty straightforward. I would start with that one.