Interpreting market sentiment from trading behavior: What do internal and external orders mean?

Open stock trading software, besides stock price and price change percentage, the most easily overlooked data by beginners are Internal and External Volume. Although they are simple trading statistics, they can directly reflect the urgency of both buyers and sellers in the market, serving as an important reference for short-term trend judgment.

Who is actively driving the transactions? Understanding the essence of internal and external volume

The process of stock trading is essentially a compromise between buyers and sellers on “price.” When placing orders, sellers set the “ask price” (hoping to sell higher), and buyers set the “bid price” (hoping to buy cheaper).

Transactions at the bid price — meaning sellers no longer want to wait and actively sell at the price buyers are willing to pay. These shares are recorded as Internal Volume. A large internal volume indicates sellers are eager to offload, usually implying stronger bearish forces.

Transactions at the ask price — meaning buyers can’t wait and are willing to pay more to buy quickly. These shares are recorded as External Volume. A large external volume indicates buyers are eager to enter, and bullish sentiment is high.

Specific example: a stock has a bid of 1160 yuan / 1415 shares, and an ask of 1165 yuan / 281 shares. If an investor directly trades 50 shares at 1160, these are recorded as internal volume; if another investor directly trades 30 shares at 1165, these are recorded as external volume.

Composition of the five-level quotes

Most investors look at the five-level quotes daily, but may not understand their meaning. The five-level quote shows the top five bid prices and the top five ask prices currently in the market.

The buy five levels (usually green) represent the five highest bid orders, and the sell five levels (usually red) represent the five lowest ask orders. For example, bid at 203.5 yuan / 971 shares is the highest price the market is willing to pay, and ask at 204.0 yuan / 350 shares is the lowest price the market is willing to sell.

Note that the five-level quotes only show “order willingness.” These orders can be withdrawn at any time and may not necessarily be executed.

How to use the internal and external volume ratio? Finding market signals from data

Internal to external volume ratio = Internal volume ÷ External volume

Based on the calculation results, you can quickly judge:

Ratio > 1 (Internal > External): Sellers are more urgent than buyers, a bearish signal, increasing the risk of stock price decline.

Ratio < 1 (Internal < External): Buyers are more urgent than sellers, a bullish signal, with a higher probability of price increase.

Ratio ≈ 1 (Internal and external are balanced): The market is in a stalemate, lacking a clear direction.

But analyzing data can’t just be superficial

Short-term traders often make the mistake of relying too heavily on a single indicator. Reality is far more complex than formulas:

Large external volume but stock price does not rise, and trading volume fluctuates wildly — be alert to “false bullish signals.” Major players may pile up large sell orders at levels one to three to lure retail investors into buying, while secretly selling off. This trap is especially common during sideways trading.

Large internal volume but stock price does not fall, with strange volume fluctuations — beware of “false bearish signals.” Major players may deliberately accumulate buy orders at levels one to three to create a false impression, inducing retail investors to sell, while actually accumulating shares at the bottom.

Internal and external volume are just one aspect of market performance. Stock prices are also influenced by market sentiment, major news, company fundamentals, and other factors.

Support and resistance zones: better combined with internal and external volume

The core of technical analysis is to predict future trends based on changes in “price” and “trading activity,” and support zones and resistance zones are essential references.

Logic of support zones

When a stock falls to a certain price level and stops declining, it indicates there are large buy orders willing to step in at that level. These buyers believe “it’s cheap enough” and expect a rebound. Seeing internal volume > external volume in the support zone, but the price stabilizes or rebounds, is a sign of strong buying support.

Logic of resistance zones

Conversely, if the stock rises to a certain level and cannot break through, it indicates there are large sell orders wanting to unload. These sellers are often investors who bought at high levels and are now trapped. When the price approaches, they want to quickly exit. Seeing external volume > internal volume but the price remains suppressed indicates strong selling pressure.

Practical trading strategies

Falling to support zone → go long; rising to resistance zone → go short

Breaking below support zone indicates buying power cannot absorb the market sell-off, usually leading to a new wave of decline until the next support zone is found.

Breaking through resistance zone indicates strong buying has absorbed all selling pressure, usually continuing upward to the next resistance zone.

The true face of internal and external volume indicators

Advantages

Real-time: Data and transactions are updated simultaneously, quickly reflecting active buying and selling during trading.

Simple to understand: Concepts are straightforward, no complex calculations needed.

Highly practical: Combining order structure and volume can improve short-term trend judgment accuracy.

Limitations

Easily manipulated by major players: Through cycles of “placing orders → active transactions → canceling orders,” major players can artificially create false internal and external volume data, misleading beginners.

Only reflect immediate buying and selling behavior: Cannot predict long-term trends, especially when fundamental factors change significantly.

Single indicator may fail: Must be combined with volume, technical analysis, and fundamental analysis; relying solely on internal/external volume can lead to errors.

Summary

Internal and external volume essentially record “who is actively trading.” Large internal volume indicates sellers eager to exit, large external volume indicates buyers eager to enter. By calculating the internal/external volume ratio, investors can quickly assess the relative strength of buying and selling forces.

However, relying solely on the internal/external volume ratio is far from enough. Combining it with support and resistance zones to determine whether the price truly has buying or selling support, along with volume confirmation, is necessary to truly understand what the market is saying.

Finally, remember that no matter how reliable a technical indicator seems, it is only a tool. The fundamental condition of the listed company, the overall economic environment, and market sentiment are the key factors that determine long-term trends. Doing thorough research and being well-prepared will improve your chances of success in the market.