Quick Guide to Understanding the Buying and Selling Power in Stocks: Internal and External Market Ratio Usage Guide

Open stock trading software, besides the opening price, highest and lowest prices, you will also see two data points: “Inner Plate” and “Outer Plate.” Short-term investors often discuss the ratio of inner to outer plates, but what do these concepts actually represent? Why should we pay attention to them? This article will help you understand the true meaning of inner and outer plates in stock transactions, and how to interpret the market’s buying and selling strength through the inner-outer ratio.

Inner Plate and Outer Plate: Who Is Actively Trading?

To understand inner and outer plates, first clarify the logic behind stock transactions. Each stock trade involves two stages: quotation and execution:

The seller hopes to raise the stock price, so they place a “Sell Order” at a certain price; the buyer hopes to lower the stock price, so they place a “Buy Order” at a certain price. There is a price difference between the two. When an actual trade occurs, it is the active party who compromises that determines whether the transaction counts as an inner plate or an outer plate.

If the transaction occurs at the buy order price, it indicates the seller actively lowered their asking price to match the buyer, and this trade is counted as an inner plate. A large inner plate volume suggests sellers are eager to offload, which is a bearish signal.

If the transaction occurs at the sell order price, it indicates the buyer actively raised their bid to match the seller, and this trade is counted as an outer plate. A large outer plate volume suggests buyers are actively chasing the price, which is a bullish signal.

For example: Suppose the buy order price is 1160 yuan/1415 lots, and the sell order price is 1165 yuan/281 lots. If an investor wants to sell immediately and executes 50 lots at 1160 (buy one price), this counts as an inner plate; conversely, if they want to buy immediately and execute 30 lots at 1165 (sell one price), this counts as an outer plate.

Level 5 Quotes: Real-Time Market Buy/Sell Queue

Level 5 quotes are the first thing investors see when opening a broker app, composed of the top five buy and sell orders.

The Buy Five (usually shown in green) displays the top 5 buy orders with the highest prices, representing the prices and lots buyers are willing to pay. The Sell Five (usually shown in red) shows the top 5 sell orders with the lowest prices, representing the prices and lots sellers are willing to deliver.

For example, if buy one shows 203.5 yuan/971 lots, it means the current highest bid is 203.5 yuan with 971 lots waiting to be traded at that price. If sell one shows 204.0 yuan/350 lots, it indicates the lowest ask is 204.0 yuan with 350 lots available.

Key reminder: Level 5 quotes only show pending orders; they do not guarantee trades. Orders can be canceled at any time.

Calculating and Interpreting the Inner-Outer Ratio

The inner-outer ratio is a core indicator measuring the strength of buying versus selling forces, calculated as:

Inner-Outer Ratio = Inner Plate Volume ÷ Outer Plate Volume

Based on the ratio result, there are three situations:

• Ratio > 1: Inner plate volume exceeds outer plate volume, indicating a bearish market sentiment, sellers are eager to lower prices, a bearish signal.
• Ratio < 1: Inner plate volume is less than outer plate volume, indicating bullish market sentiment, buyers are actively chasing prices, a bullish signal.
• Ratio = 1: Both sides are balanced, market is indecisive, and the future trend is uncertain; further confirmation signals are needed.

Practical Application of the Inner-Outer Ratio

The inner-outer ratio itself is just a single data point. In practice, it should be combined with price trends, volume changes, and order book structure to improve accuracy.

Healthy Bullish Signal: Outer plate volume is significantly larger than inner plate, and the stock price is rising in sync. If trading volume also increases, it indicates strong buying momentum supporting the price rise, making short-term upward movement more promising.

Healthy Bearish Signal: Inner plate volume is significantly larger than outer plate, and the stock price is falling in sync. If volume increases, it suggests selling pressure is real, and the short-term downside risk is higher.

Caution Scenario 1 — Fake Bull Trap: Outer plate volume exceeds inner plate, but the stock price does not rise and instead falls, with volume fluctuating wildly. This may be a manipulation where large sell orders are piled up to induce retail investors to buy, while insiders are secretly selling. Typical signs include abnormal outer plate volume during sideways movement, with sell orders from sell one to sell three increasing, followed by a sudden gap down.

Caution Scenario 2 — Fake Bear Trap: Inner plate volume exceeds outer plate, but the price does not fall and instead rises, with volume fluctuating. Insiders may be stacking buy orders to lure retail investors into selling, secretly accumulating shares. Common patterns include a slight price increase with sudden increase in inner plate volume, while buy one to buy three orders keep piling up, and the price continues to climb.

Key understanding: Besides volume, market sentiment, news, and company fundamentals also influence market behavior. Relying solely on the inner-outer ratio can lead to pitfalls; a multi-angle analysis is essential.

The Role of Support and Resistance Zones

Technical analysis hinges on observing the interaction between “price” and “volume.” In this process, support and resistance zones play a critical role.

Meaning of Support Zone

Even if the inner plate exceeds the outer plate, indicating sellers are more eager, when the price drops to a certain level and “won’t go down further,” it shows strong buying interest at that price. Many buyers believe the price is cheap enough to buy, expecting a rebound. This level is called a Support Zone. When the price hits the support zone, a rebound often occurs, and investors may consider going long.

Meaning of Resistance Zone

Conversely, if the outer plate exceeds the inner plate, showing strong buying momentum, but the price cannot break through a certain level and is resisted, that level becomes a Resistance Zone. Resistance zones often form when a stock declines from a high level, and buyers near that price are reluctant to realize losses or hold long-term. When the price approaches this level, they tend to sell to cut losses. As selling pressure increases and fewer buyers are willing to buy, the market struggles to break through the resistance zone.

Range Trading Strategy

Recommended trading logic:

When the price oscillates within the support and resistance zones, traders can buy low near support and sell high near resistance—buying at support and shorting at resistance.

However, if the stock breaks below support or above resistance, the situation changes. This indicates the support or resistance has failed, and the market may either trend downward until the next support zone or upward until the next resistance zone.

Advantages and Limitations of the Inner-Outer Indicator

Advantages

Real-time: Inner and outer plate data update instantly with trades, reflecting active buying and selling behavior in the market.

Easy to learn: The concept is straightforward, requiring no complex calculations, suitable for beginners.

Supports market analysis: When combined with order book data, volume, and other indicators, it can improve short-term trend judgment.

Limitations to be aware of

Manipulation risk: Major players can use “placing orders → active trades → canceling orders” cycles to artificially create false signals. Relying solely on this indicator can lead to traps.

Short-term reflection: Inner and outer plates only show current transaction status; they cannot predict medium- or long-term trends.

Potential distortion: Must be combined with volume, technical analysis, and fundamental data; using it alone carries risks.

Summary

The inner and outer plates are fundamentally tools to measure the strength of buying and selling forces in the market. By comparing the trading volumes of inner and outer plates, investors can quickly gauge the market sentiment and the urgency of buyers and sellers.

When the inner plate exceeds the outer plate, it indicates sellers are eager to sell at the buy order price, increasing the likelihood of a price decline; when the outer plate exceeds the inner plate, it suggests buyers are eager to buy at the sell order price, increasing the chance of a price rise.

However, no single indicator can dominate the market. The inner-outer ratio, support and resistance zones, and other technical tools are just parts of a comprehensive analysis. Sound investment decisions require considering company fundamentals, macroeconomic conditions, industry outlook, and thorough research to improve trading success rates.