The difference between the inner and outer plates in stock trading: secrets to mastering the initiative in buying and selling

When trading stocks, many investors see the indicators “Inner Plate” and “Outer Plate” on their charting software but only have a vague understanding of their actual meanings. In fact, these seemingly complex concepts reflect who is more eager to execute trades—the buyers or the sellers—in the market. Mastering the inner and outer plates allows you to quickly judge short-term capital flow and identify turning points in stock prices.

Who is the Initiator: The Fundamental Difference Between Inner and Outer Plates

To understand inner and outer plates, first recognize that there are two states in stock trading: “Pending Orders” and “Real-Time Transactions.” Sellers place limit orders at their asking prices (hoping to sell at higher prices), while buyers place limit orders at their bid prices (hoping to buy at lower prices).

When buyers are willing to actively accept the sellers’ asking prices, the transaction occurs at the ask price, and the number of shares bought at this price is recorded as the “Outer Plate.” This indicates that buyers are more aggressive, willing to pay a premium to buy, signaling bullish sentiment.

When sellers are willing to actively accept the buyers’ bid prices, the transaction occurs at the bid price, and the number of shares sold at this price is recorded as the “Inner Plate.” This suggests sellers are more proactive in unloading shares, indicating bearish sentiment.

For example: If the outer plate quote is 1200 yuan and the inner plate is 1195 yuan, and an investor wants to sell immediately at 1200 yuan, this trade is recorded as an inner plate (seller actively matching buyer’s bid). Conversely, if they want to buy immediately at 1195 yuan, it is recorded as an outer plate (buyer actively bidding higher).

Level 5 Quote: The First Step to Reading the Order Book

Open your brokerage app, and the first thing you’ll see is the Level 5 quote. It consists of buy and sell sides, showing the top 5 bid and ask prices with their respective volumes.

On the left is the buy side (usually green), representing the top 5 bid prices and quantities, with the best bid (buy one) being the highest bid. On the right is the sell side (usually red), representing the top 5 ask prices and quantities, with the best ask (sell one) being the lowest ask.

Note that Level 5 quotes only show pending orders; they do not guarantee execution, as orders can be withdrawn at any time.

Inner and Outer Plate Ratio: A Practical Indicator of Buying and Selling Power

Short-term traders pay close attention to whether transactions are concentrated on the inner or outer plate, known as the “Inner-Outer Plate Ratio.”

Calculation formula: Inner-Outer Plate Ratio = Inner Plate Volume ÷ Outer Plate Volume

When the ratio > 1: Inner plate volume exceeds outer plate volume, indicating selling pressure dominates, market sentiment is bearish, and sellers are pushing prices down—this is a bearish signal.

When the ratio < 1: Inner plate volume is less than outer plate volume, indicating strong buying interest, market sentiment is bullish, and buyers are chasing prices—this is a bullish signal.

When the ratio = 1: Buying and selling forces are balanced, the market is in stalemate, and the future trend is uncertain; wait for stronger signals.

Practical Application of the Inner-Outer Plate Ratio

The true value of the inner-outer plate ratio lies in combining it with stock price position, volume, and order book structure for comprehensive analysis:

• Outer plate > Inner plate and price rising: Buyers are actively pushing the price up, a healthy bullish sign. If volume also increases, the short-term upward momentum is stronger.

• Inner plate > Outer plate and price falling: Sellers are actively unloading, causing the price to decline, a healthy bearish sign. Increased volume indicates greater short-term downward pressure.

• Outer plate > Inner plate but price not rising, instead falling, with fluctuating volume: Beware of “Fake Bull Trap.” Major players may place fake sell orders to lure retail investors into buying, while secretly selling off. This manifests as sideways price movement, with outer plate significantly larger than inner plate, but with sell orders (sell one to sell three) continuously increasing, followed by a sudden drop in price.

• Inner plate > Outer plate but price not falling, instead rising, with fluctuating volume: Beware of “Fake Bear Trap.” Major players may place buy orders to deceive retail investors into selling, secretly accumulating shares. This appears as slight price increases, with inner plate larger than outer plate, and buy orders (buy one to buy three) continuously stacking, eventually leading to further price gains.

Sometimes, the inner plate exceeds the outer plate, yet the price still rises. This is often due to other factors like market sentiment, news, or fundamentals influencing the trend; a single indicator cannot determine the direction alone.

Support and Resistance Zones: Advanced Use of Inner and Outer Plates

Beyond assessing current buying and selling strength, technical analysis emphasizes observing support and resistance zones.

Formation of Support Zones: Although inner plate > outer plate indicates more sellers, if the price drops to a certain level and then stops falling, it suggests a large number of buy orders at that level. Investors believe the price is cheap there and expect a rebound, forming a support zone. Consider buying in this area.

Formation of Resistance Zones: Conversely, if outer plate > inner plate but the price cannot break higher and stalls, it indicates a resistance zone. Usually, sellers who bought at higher prices are reluctant to realize losses, and when the price approaches their buy-in levels, they start selling to cut losses. The greater the selling pressure, the harder it is for the price to rise.

Practical Tip: When a stock is within support or resistance zones, traders can buy near support and sell near resistance—buy low, sell high. If the price breaks below support or surpasses resistance, it signals a change in market structure, often leading to a new trend until the next support or resistance level.

Advantages and Limitations of Inner-Outer Plate Indicators

Advantages:

• Real-time: Data updates instantly with transactions, reflecting current buying/selling activity.

• Simple to understand: The concept is straightforward and intuitive, requiring no complex calculations.

• Enhanced judgment: When combined with order book data, volume, and other technical indicators, it can improve short-term trend predictions.

Limitations:

• Manipulation risk: Major players can fake signals through placing and withdrawing orders, or executing fake trades, making the data potentially misleading if used alone.

• Short-term focus: Inner and outer plates reflect immediate transaction behavior but do not indicate long-term trends.

• Potential distortion: Relying solely on this indicator without considering volume, technical analysis, or fundamentals can lead to incorrect conclusions.

Summary

Inner and outer plates are tools to gauge the strength of buying and selling forces in the market. By comparing the transaction volumes on each side, traders can quickly assess the urgency of market participants. When outer plate volume is large, buyers are eager, and prices tend to rise; when inner plate volume dominates, sellers are active, and prices may fall.

However, stock investing is complex, and no single indicator suffices. Inner-outer plate ratios, support and resistance zones, and other technical tools should be combined with fundamental analysis, industry outlook, and macroeconomic factors to make more informed trading decisions and improve success rates.