Understanding Stock Transaction Codes: An In-Depth Analysis of the Trading Psychology of Inner and Outer Plates

Many novice stock investors, when opening their trading software, focus on open, high, and low prices, but are often confused by the data of “internal volume” and “external volume.” In fact, these two indicators can directly reflect market participants’ trading mentality and capital flow. Mastering their interpretation is like holding a key to short-term trading. This article will guide you from the trading scene to understand the significance of stock internal and external volume and their ratio.

What Happens in the Trading Scene: The Logic Behind Internal and External Volume Formation

Before stock trading begins, there are two price expectations in the market: sellers want to raise the price (ask price), buyers want to lower the price (bid price). Who initiates the matching determines the classification of the transaction.

When a stock transaction occurs at the bid price, sellers actively sell, and this volume is recorded as internal volume—indicating sellers are more eager to sell, a bearish signal. Conversely, when a transaction occurs at the ask price, buyers actively buy at a higher price, and this volume is recorded as external volume—showing buyers’ active attitude, often implying bullishness.

For example: if a stock’s bid price is 1160 yuan with 1415 lots, and the ask price is 1165 yuan with 281 lots. If an investor sells 50 lots directly at 1160, that 50 lots count as internal volume; if they buy 30 lots directly at 1165, that 30 lots are counted as external volume.

The Standard Setup for Quickly Reading the Order Book: The True Face of the Five-Level Quotes

Five-level quotes consist of the top five bid and ask orders. The left side (usually green) shows the five highest bid prices and their order quantities; the right side (usually red) shows the five lowest ask prices and their quantities. It’s important to note that five-level quotes are only the displayed orders, not confirmed transactions—they can be withdrawn at any time.

Internal and External Volume Ratio: A Formula to See Through Buying and Selling Power

Internal-External Volume Ratio = Internal Volume ÷ External Volume

This ratio directly reflects market strength comparison:

• Ratio > 1: Sellers are more urgent than buyers, market sentiment is bearish, a bearish signal.
• Ratio < 1: Buyers are more active than sellers, market enthusiasm for buying is rising, a bullish signal.
• Ratio = 1: Bulls and bears are balanced, the market is in stalemate, direction to be observed.

Practical Application: How to Make Decisions Based on Internal and External Volume Ratio

Relying solely on the internal-external volume ratio can lead to losses. Investors need to combine stock price position, volume changes, and order book structure for comprehensive analysis:

Healthy signals

• External volume > Internal volume and price rises: buyers are actively pushing up, and if volume increases, upward momentum is stronger.
• Internal volume > External volume and price falls: sellers actively push down, and if volume expands, downward pressure is greater.

Hidden dangers

• External volume > Internal volume but price is flat or falling with irregular volume: beware of the main players creating fake bullish signals by placing sell orders to lure retail investors into buying, while secretly selling off.
• Internal volume > External volume but price rises instead of falls with strange volume patterns: watch out for false bears, where main players place buy orders to lure retail into selling, while they quietly accumulate shares.

This reminds us that stock price movements are influenced not only by volume but also by market sentiment, news, and fundamentals.

Defensive Logic at Key Price Levels: Support and Resistance Zones

Support zone forms at a certain price level after a decline. Although internal volume > external volume indicates selling pressure, if the price cannot fall further, it shows sufficient buying strength is gathering there, indicating a rebound opportunity. Investors might consider long positions in the support zone.

Resistance zone is the opposite. Even if external volume > internal volume indicates strong buying, if the price cannot rise despite vigorous buying, heavy selling pressure exists. Usually, this selling pressure comes from investors who bought high and are unwilling to sell at a loss. When the price approaches this zone, their willingness to sell increases, forming a new resistance.

Practical advice: conduct swing trading within these zones—buy near support, sell near resistance. However, if the price breaks through support or resistance, it indicates the original buying/selling forces have failed, often leading to a trend in one direction until the next support or resistance zone is encountered.

The Double-Edged Nature of Internal and External Volume: Advantages and Limitations

Advantages of using internal and external volume

• Real-time data: immediately updates with trades, reflecting current trader sentiment.
• Easy to understand: straightforward concept suitable for beginners.
• Strong auxiliary support from order book and volume analysis: improves short-term trend judgment.

Unavoidable drawbacks

• Susceptible to manipulation by major players: through placing orders, executing trades, then canceling to create false signals—relying solely on this data can be deceptive.
• Short-term focus: only reflects current transactions, not long-term trend.
• High risk of distortion when used alone: must combine with volume, technical analysis, and fundamentals to improve reliability.

Final Reminder

Internal and external volume are useful tools to gauge market buying and selling strength. Comparing their volumes allows investors to quickly sense the urgency of both sides. However, financial trading cannot rely on a single indicator for success. Internal-external volume ratio, support and resistance zones are all part of technical analysis. Making truly effective trading decisions requires integrating company fundamentals and macroeconomic conditions to enhance winning chances.