Stock Market Depth Password: Understand the Inner and Outer Orders, Grasp the Main Force Trends

When you open your trading software, among the dazzling data, there are three terms that are most easily overlooked by beginners—Inner Volume, Outer Volume, and Inner-Outer Volume Ratio. They may seem insignificant, but in fact, they hide the secrets of market buying and selling strength, and can even help you detect the true intentions of the main players. This article will guide you from zero, revealing the trading logic behind these indicators.

Level 5 Quotes: The First View of the Order Book

Before understanding inner and outer volume, first get familiar with the most common display on the order book—Level 5 Quotes.

When you open your broker app, you’ll see numbers and colors on the left and right sides. The left side is usually shown in green, representing Buy 5 Levels, which are the top 5 buy orders in the market (arranged from high to low price); the right side is shown in red, representing Sell 5 Levels, which are the top 5 sell orders (arranged from low to high price).

For example, “Buy 1” shows “203.5 yuan / 971 shares,” indicating that the highest bid in the market willing to buy at 203.5 yuan is 971 shares; “Sell 1” shows “204.0 yuan / 350 shares,” meaning the lowest ask willing to sell at 204.0 yuan is 350 shares.

Important Tip: Level 5 quotes are just orders, not guaranteed to be executed—orders can be canceled at any time.

Inner Volume and Outer Volume: Who Is Driving the Trades?

Level 5 quotes tell you “who wants to buy, who wants to sell,” but inner and outer volume answer a more critical question: Who compromises first?

The essence of initiative

Before a trade occurs, there are two types of orders in the market:

• Bid Price: the highest price a buyer is willing to pay
• Ask Price: the lowest price a seller is willing to sell at

When you want to execute immediately, you usually need to proactively match the other side’s price. Whoever takes the initiative to match reveals their trading mentality.

Inner Volume: Sellers are fleeing

When a stock trades at the bid price, these transactions are recorded as Inner Volume. Simply put, sellers don’t want to wait and sell directly at the buyer’s quoted price.

Meaning of Inner Volume: Sellers are more eager, willing to cut prices to sell, indicating more bearish sentiment, which is a bearish signal.

Outer Volume: Buyers are chasing prices

When a stock trades at the ask price, these transactions are recorded as Outer Volume. That is, buyers refuse to give way and buy directly at the seller’s quoted price.

Meaning of Outer Volume: Buyers are more eager, willing to chase prices to buy, indicating more bullish sentiment, which is a bullish signal.

Practical example: a certain stock’s Buy 1 is “1160 yuan / 1415 shares,” and Sell 1 is “1165 yuan / 281 shares.”

• An investor wants to sell immediately, placing an order at 1160 yuan (bid price), and executes 50 shares → these 50 shares count as Inner Volume.
• An investor wants to buy immediately, placing an order at 1165 yuan (ask price), and executes 30 shares → these 30 shares count as Outer Volume.

Inner-Outer Volume Ratio: The Scoreboard of Buying and Selling Power

Inner-Outer Volume Ratio is a simple formula to quantify the comparison of buying and selling strength:

Inner-Outer Volume Ratio = Inner Volume ÷ Outer Volume

Interpretation of three scenarios

Ratio > 1 (Inner Volume greater than Outer Volume)

• Market sentiment is strongly bearish, with sellers frequently cutting prices to execute trades
• Short-term decline is more likely
• Bearish signal

Ratio < 1 (Inner Volume less than Outer Volume)

• Market sentiment is strongly bullish, with buyers continuously chasing prices to execute trades
• Short-term rise is more likely
• Bullish signal

Ratio = 1 (Inner and Outer Volume are equal)

• Buying and selling forces are balanced, market is in stalemate or consolidation
• Future direction is uncertain, more clear signals are needed

Inner-Outer Volume Tips: Practical Judgment Skills

Just looking at the inner-outer volume ratio isn’t enough; true experts combine it with stock price position, trading volume, and order book structure for judgment.

Healthy Bullish/Bearish Signals

Outer Volume > Inner Volume, and stock price rises

• Buyers are actively entering, pushing the price higher
• A healthy bullish signal
• If trading volume also increases, the short-term upward momentum is even stronger

Inner Volume > Outer Volume, and stock price falls

• Sellers are actively offloading, driving the price down
• A healthy bearish signal
• If trading volume increases, the short-term downward pressure is greater

Caution for “Trap” Signals

Outer Volume > Inner Volume but stock price does not rise/fall, with fluctuating volume

• Beware of “false bullish” phenomena
• Main players may deliberately place high orders to confuse retail investors into buying actively, while secretly selling
• Typical pattern: stock price moves sideways, outer volume is significantly larger than inner volume, but sell orders at levels 1-3 keep increasing, then the price suddenly drops

Inner Volume > Outer Volume but stock price does not fall/rise, with fluctuating volume

• Beware of “false bearish” phenomena
• Main players may deliberately place low orders to induce retail investors to sell, while secretly accumulating
• Typical pattern: stock price slightly rises, inner volume exceeds outer volume, but buy orders at levels 1-3 keep stacking, then the price continues upward

Support and Resistance Zones: Advanced Application with Inner-Outer Volume

Inner-outer volume ratio is just a short-term signal; deeper technical analysis involves observing support zones and resistance zones.

Application of Support Zones

When the stock price drops to a certain level and cannot go lower, it indicates strong buying interest at that price, forming a support zone. Buyers believe it’s cheap here and expect a rebound. When inner volume > outer volume at this point, it can turn into a buy signal.

Application of Resistance Zones

When buying pressure is strong but unable to push the price higher, instead getting stuck at a certain level, it forms a resistance zone. Usually, this is because previous buyers at high levels are reluctant to lose money, and when the price rebounds, they sell aggressively.

Practical Strategies

Trade within the range: go long at support zones, short at resistance zones.

When a breakout occurs:

• Price breaks below support → usually indicates a continuous decline until the next support
• Price surpasses resistance → usually indicates a continuous rise until the next resistance

Pros and Cons of Inner-Outer Volume Indicators

Advantages

High immediacy: Data updates in real-time with trades, quickly reflecting market active buying and selling

Easy to understand: Simple logic, no complex calculations, suitable for novice investors

Clear auxiliary role: When combined with bid/ask orders and trading volume, it can improve short-term trend judgment accuracy

Disadvantages

Prone to manipulation: Main players can use “placing orders—active trades—cancel” tactics to artificially create false inner and outer volume data

Short-term only: Reflects current trading behavior but cannot determine long-term trends

Can be distorted if used alone: Must be combined with trading volume, technical analysis, and fundamental analysis for comprehensive judgment

Complete Investment Decision Framework

Inner-outer volume ratio is just the tip of the iceberg in technical analysis. True investment decisions should include:

1. Technical Analysis: inner-outer volume, support/resistance, moving averages, volume, etc.
2. Fundamental Analysis: company financials, industry outlook, competitive advantages, etc.
3. Market Sentiment: overall economic environment, policy changes, market mood, etc.

Relying on a single indicator can be manipulated or fail; only a multi-dimensional comprehensive analysis can improve your trading success rate. Before actual trading, it’s recommended to practice with simulated trading to familiarize yourself with order book changes and decision logic, so you can respond more confidently in real markets.

Remember: Inner-outer volume is not a prophecy, just a mirror reflecting the current market psychology.