Understand stock internal and external order data: grasp the true intentions of buyers and sellers

Many beginners notice that besides the opening, high, and low prices, there are also two constantly changing numbers called “internal volume” and “external volume.” The meaning behind these two indicators often determines the true direction of short-term capital flow and is a key tool for judging the immediate momentum of stock prices.

Internal and External Volume: Who Is Actively Driving the Trades?

The essence of internal and external volume is to distinguish “who is actively driving the transaction.”

Before a stock trade occurs, there are two quoting states in the market:

• Bid Price: The highest price buyers are willing to pay
• Ask Price: The lowest price sellers are willing to accept

When a trade occurs at the bid price, it is recorded as internal volume, indicating that sellers are more urgent and actively matching buy orders. Sellers eager to sell usually reflect bearish sentiment and are a bearish signal.

When a trade occurs at the ask price, it is recorded as external volume, indicating that buyers are more urgent and willing to pay higher prices. Buyers eager to enter the market usually reflect bullish sentiment and are a bullish signal.

For example: If the current bid is 1160 yuan/1415 lots, and the ask is 1165 yuan/281 lots. If an investor wants to sell immediately and places an order at 1160 to sell 50 lots, this counts as internal volume; conversely, if they want to buy immediately at 1165 and place an order to buy 30 lots, this counts as external volume.

The Actual Meaning of the Five-Price Quotes

The five-price quotes you see when opening a broker app actually display the market’s real-time top five bid and ask prices, along with the corresponding order quantities.

Buy Five (usually green) shows the top five highest bid prices, arranged on the left. Sell Five (usually red) shows the lowest five ask prices, arranged on the right. For example, bid one shows 203.5 yuan/971 lots as the highest bid, and ask one shows 204.0 yuan/350 lots as the lowest ask.

Note that the five-price quotes are just displayed orders; they do not necessarily mean trades have occurred, as orders can be withdrawn at any time.

Internal and External Volume Ratio: A Measure of Buying and Selling Momentum

Internal-External Volume Ratio = Internal Volume ÷ External Volume

This ratio allows investors to quickly assess who is more urgent in the current market:

Ratio > 1: Internal volume exceeds external volume, indicating stronger bearish sentiment among sellers, a bearish signal.

Ratio < 1: Internal volume is less than external volume, indicating stronger bullish sentiment among buyers, a bullish signal.

Ratio = 1: The buying and selling forces are balanced, and the market is in a stalemate; the future direction is uncertain.

How to Use the Internal-External Volume Ratio in Practice

Using the internal-external volume ratio alone can be misleading. Combining it with the stock price position, trading volume, and order book structure can improve judgment accuracy:

• External volume > internal volume, and the stock price is rising — Buyers are actively pushing the price higher, a healthy bullish sign. If volume also increases, the short-term rally is even stronger.

• Internal volume > external volume, and the stock price is falling — Sellers are actively pushing the price down, a healthy bearish sign. If volume increases, downward pressure is greater.

• External volume > internal volume but the stock price is flat or falling, with fluctuating volume — Beware of “false bullishness.” Major players may place large sell orders to attract retail buyers but secretly sell off. For example, if the price is sideways, external volume is significantly higher than internal, but the sell orders at levels one to three keep increasing, followed by a sudden drop in price.

• Internal volume > external volume but the stock price rises instead of falling, with fluctuating volume — Beware of “false bearishness.” Major players may deliberately pile up buy orders to induce retail selling, secretly accumulating shares. For example, if the price slightly rises, internal volume exceeds external, but buy orders at levels one to three keep stacking, and the price continues upward.

It should be noted that the market is also influenced by sentiment, news, fundamentals, and other factors. Sometimes, internal volume exceeds external volume, yet the price still rises. In such cases, broader context should be considered.

Applying Internal and External Volume in Support and Resistance Zones

Formation of Support Zones: Although internal volume > external volume indicates sellers are more urgent, when the price drops to a certain level and “cannot go lower,” it suggests strong buying interest at that level. Many buyers believe the price is cheap and expect a rebound, forming a support zone. Investors may consider going long near this level.

Formation of Resistance Zones: External volume > internal volume indicates strong buying momentum, but if the price cannot break higher and stalls at a certain level, it forms a resistance zone. Usually, high-level investors who bought at higher prices do not want to sell at a loss but also do not want to hold long-term. When the price approaches, they start selling, creating selling pressure. As selling pressure increases, fewer buyers are willing to push the price higher, and the buying interest may turn into a new resistance.

Practical Trading Tips:

• Buy near support zones when the stock is bouncing off these levels.
• Sell near resistance zones.
• Short at resistance zones and go long at support zones.
• If the stock breaks below support or above resistance, it often indicates a potential trend change.

Advantages and Disadvantages of Using Internal and External Volume as Trading Indicators

Advantages: High immediacy, updates simultaneously with trades, quickly reflects the active participation of buyers and sellers; conceptually simple, low entry barrier; when combined with bid-ask orders and volume, can improve short-term trend judgment.

Disadvantages: Easily manipulated. Major players can use “placing orders—active trades—cancel orders” to create false internal and external volume data. Relying solely on these can lead to wrong directions; they reflect only current trading behavior and cannot predict long-term trends; using them alone can be misleading, so they should be combined with volume, technical analysis, and fundamental analysis.

Summary

Internal and external volume are important references for measuring the balance of market buying and selling forces. When internal volume exceeds external volume, it indicates sellers are eager to sell at bid prices, increasing the likelihood of a price decline; when external volume exceeds internal volume, buyers are eager to buy at ask prices, increasing the chance of a price rise.

However, successful investing is never based on a single indicator. Internal-external volume ratio, support and resistance zones, and other tools are just part of technical analysis. Comprehensive investment decisions should also consider company fundamentals, industry outlook, and macroeconomic conditions. Doing thorough research and cautious decision-making can improve your chances of success in the market.