Is the internal stock market price higher than the external market price for a rise? Understand the bid-ask price spread to see through the main force's intentions

Understanding Domestic and Foreign Volume from the Transaction Orders

When you open your trading software, besides the opening price, highest, and lowest prices, you’ll see two numbers: ‘Inner Volume’ and ‘Outer Volume’. Many people have a vague understanding of them. In fact, their essence is simple—distinguishing who is actively driving the transactions.

In stock trading, there are two scenarios: order placement (limit orders) and real-time execution. When a trade occurs, it depends on whether the buyer or the seller actively initiates the transaction.

Sellers hoping to raise the price will place a “sell limit order,” while buyers aiming to lower the price will place a “buy limit order.” The story between this spread is the core of inner and outer volume.

The True Meaning of Inner and Outer Volume

Inner Volume: When a stock price trades at the buy limit price, the number of shares sold is recorded as inner volume. It indicates sellers are more urgent, actively matching buy orders to complete transactions. Active sellers = Bearish signal.

Outer Volume: When a stock price trades at the sell limit price, the number of shares bought is recorded as outer volume. It indicates buyers are more urgent, willing to pay higher prices to buy. Active buyers = Bullish signal.

For example, suppose TSMC’s five-level quotes are:

• Buy orders: 1160 yuan / 1415 shares
• Sell orders: 1165 yuan / 281 shares

If you want to sell immediately, you place an order at 1160 and execute 50 shares → this 50 shares are counted as Inner Volume (sellers actively matching buy orders).

If you want to buy immediately, you place an order at 1165 and execute 30 shares → this 30 shares are counted as Outer Volume (buyers actively matching sell orders).

Five-Level Quotes: A Snapshot of Market Depth

The five-level quotes are composed of inner and outer volume, showing the top five bid and ask prices and their corresponding order quantities.

On the left are the Top 5 Bids (green), representing the highest five buy orders; on the right are the Top 5 Asks (red), representing the lowest five sell orders. For example, Bid 1 (203.5 yuan / 971 shares) is the highest bid, and Ask 1 (204.0 yuan / 350 shares) is the lowest ask.

Note that the five-level quotes only show pending orders, not necessarily executed trades. Investors can withdraw orders at any time.

How to Interpret the Inner and Outer Volume Ratio

Inner and outer volume ratio = Inner volume ÷ Outer volume

Ratio > 1: Inner volume > Outer volume, indicating high bearish sentiment, sellers are aggressively lowering prices, a bearish signal.

Ratio < 1: Inner volume < Outer volume, indicating high bullish sentiment, buyers are actively chasing prices, a bullish signal.

Ratio = 1: The buying and selling forces are balanced, the market is in a stalemate, and the trend is unclear.

Hidden Implications of When Inner Volume Exceeds Outer Volume During Price Rises

Theoretically, when inner volume exceeds outer volume, it should indicate bearishness and falling prices. However, in actual trading, cases where inner volume exceeds outer volume during price increases do occur, often reflecting the following possibilities:

Scenario 1: Main force absorbing shares Inner volume > outer volume but the price does not fall—instead, it rises, with volume fluctuating significantly → beware of “false bearishness.” The main force may be deliberately placing buy orders to lure retail investors to sell, secretly accumulating shares. For example, the price slightly rises, inner volume is significantly higher than outer volume, but buy 1 to buy 3 orders keep stacking, and the price continues upward.

Scenario 2: Multiple factors driving the market Financial markets are influenced by more than just volume indicators. Besides trading volume, market sentiment, news, fundamentals also drive prices. There may be positive announcements or overall market rallies that mask weak signals from inner and outer volume data.

Therefore, when inner volume exceeds outer volume, do not mechanically short; instead, combine with other factors such as price position, abnormal volume, and order book structure for comprehensive judgment.

Practical Application: Using Inner and Outer Volume Ratios to Predict Trends

Outer volume > Inner volume, price rises simultaneously Buyers actively push the price higher, indicating healthy bullishness. If accompanied by increased volume, the short-term upward momentum is stronger → Bullish trading.

Inner volume > Outer volume, price falls simultaneously Sellers actively offload, causing the price to decline, indicating healthy bearishness. If volume increases, the short-term downward pressure is greater → Bearish trading.

Outer volume > Inner volume but price declines or stagnates, volume fluctuates Beware of “false bullishness.” Main players may be placing sell orders to induce retail buying, secretly selling off. For example, if the price consolidates, outer volume is much larger than inner volume, but sell 1 to sell 3 orders keep increasing, then the price suddenly plunges.

Support and Resistance Zones: Advanced Judgment with Inner and Outer Volume

Besides observing buying and selling strength, technical analysis focuses on support and resistance zones.

Support Zone Logic

When a stock’s price drops to a certain level and cannot go lower, it indicates many are willing to buy at that price—this is a support zone. Buyers believe the price is cheap and expect a rebound → consider bullish positions.

Resistance Zone Logic

Conversely, if buying pressure remains strong (outer volume > inner volume) but the price cannot rise further, being blocked at a certain level, this is a resistance zone. Resistance often forms when a stock declines from high levels—those who bought high are reluctant to sell at a loss and want to unload when near that level. The greater the selling pressure, the fewer willing to buy at that price → resistance becomes a new barrier.

Range Trading Strategy

Buy at support zones, sell at resistance zones; short at resistance zones, buy at support zones.

Once the stock breaks below support or above resistance, it indicates insufficient buying to absorb selling pressure or that strong buying has absorbed all selling. Usually, a one-sided trend follows until the next support or resistance zone is reached.

Advantages and Limitations of Inner and Outer Volume Indicators

Advantages

• Real-time: Updates simultaneously with trades, fastest to reflect active buying and selling during the session
• Easy to understand: Simple concept, no complex calculations needed
• Supports order book analysis: When combined with bid/ask orders and volume, improves short-term judgment accuracy

Limitations

• Prone to manipulation: Main players can use “placing orders—active trades—canceling” to artificially create data, relying solely on this can lead to wrong directions
• Short-term focus: Reflects current trading behavior, cannot determine long-term trend
• Misleading if used alone: Must be combined with volume, technical analysis, and fundamentals

Summary of Practical Tips

1. Inner and outer volume indicate who is more eager: Not who has larger volume, but who actively initiates the trade

2. Inner/outer volume ratio is just a reference: When inner volume exceeds outer volume during price rises, do not mechanically short; check other signals

3. Combine with volume analysis: When inner and outer volume are abnormal together, the signals are more reliable

4. Integrate with support and resistance zones: Performance at key levels provides more valuable insights

5. Fundamentals always come first: No matter how sophisticated the technical analysis, it cannot beat negative news or industry trend changes

Financial investment cannot rely on a single indicator. Inner and outer volume ratios, support and resistance zones, and other tools are just parts of technical analysis. It is essential to consider company fundamentals and overall economic changes to prepare thoroughly and improve success rates.