How to interpret the internal and external plates? Master the internal and external plate ratios to judge the buying and selling momentum in the stock market.

Open the stock trading software, and besides price fluctuations, the first numbers that catch the eye are the Inner Market (內盤), Outer Market (外盤), and the Inner/Outer Market ratio. Although these indicators seem complex, they actually reflect one thing: who is driving the stock price movement. To capture turning points in short-term trading, understanding the logic behind the Inner and Outer Market is a must.

Core Logic of Inner and Outer Market

In stock trading, there are two situations: pending orders and real-time transactions. Simply put, the Inner and Outer Market differentiate who is actively executing trades.

Sellers hoping to push the price higher will place sell orders at the bid price, while buyers wanting to lower the price will place buy orders at the ask price. When a trade occurs at the bid price, it is recorded as an Inner Market—indicating sellers are more aggressive and willing to sell directly at the buyers’ bid. The more active the sellers, the more the signal leans toward a bearish (short) indication.

Conversely, when a trade occurs at the ask price, it is recorded as an Outer Market—indicating buyers are more aggressive and willing to chase the price up. The more aggressively buyers chase the price, the clearer the bullish (long) signal.

For example, suppose TSMC’s best bid is 1160 yuan for 1,415 shares, and the best ask is 1165 yuan for 281 shares. If an investor immediately sells 50 shares at 1160, that’s an Inner Market transaction; if someone immediately buys 30 shares at 1165, that’s an Outer Market transaction.

Five-Order Book as a Panorama of Trading Depth

The five-level order book shows the most urgent buying and selling intentions. The left side (usually green) displays the top five bid prices and their quantities, while the right side (usually red) shows the top five ask prices and their quantities.

The difference between the best bid and best ask is called the “spread.” A smaller spread indicates easier transactions. Note that the five-level order book only shows pending orders; not all will necessarily be executed and can be withdrawn at any time.

Calculation and Interpretation of Inner/Outer Market Ratio

Inner/Outer Market Ratio = Inner Market Volume ÷ Outer Market Volume

• Ratio > 1: Inner Market volume exceeds Outer Market volume, indicating strong selling pressure, a bearish signal
• Ratio < 1: Inner Market volume is less than Outer Market volume, indicating strong buying interest, a bullish signal
• Ratio = 1: Bulls and bears are balanced, the market is in stalemate, and the trend is uncertain

How to Use the Inner/Outer Market Ratio in Practice

The biggest value of the Inner/Outer Market ratio is when combined with stock price position and trading volume. Looking at the ratio alone can often be deceptive due to manipulation by big players.

Healthy Bullish Signal: Outer Market volume exceeds Inner Market volume and the stock price is rising. Buyers are actively pushing the price higher. If trading volume also increases, the short-term upward momentum is stronger.

Healthy Bearish Signal: Inner Market volume exceeds Outer Market volume and the stock price is falling. Sellers are actively driving the price down. When volume increases, downward pressure is greater.

Beware of Fake Bullish Signals: Outer Market appears larger than Inner Market but the stock price remains stagnant or even declines, with fluctuating volume. This may be due to big players placing large sell orders at levels one to three, inducing retail investors to chase the buy, while secretly offloading shares. When this occurs, beware of a subsequent breakdown.

Beware of Fake Bearish Signals: Inner Market appears larger than Outer Market but the stock price does not fall; instead, it rises, with strange volume fluctuations. Big players might be stacking buy orders at levels one to three to induce retail investors to sell, while actually accumulating shares. When the price continues upward afterward, the deception is exposed.

Practical Significance of Support and Resistance Zones

In technical analysis, support and resistance zones are often more reliable than just Inner and Outer Market data.

Formation of Support Zones: Although Inner Market volume exceeds Outer Market, indicating sellers are eager to offload, when the price drops to a certain level and cannot go lower, it shows a large number of buyers see this as a bargain and are willing to absorb the shares. These buyers expect the price to rebound, so traders should consider going long at support zones.

Formation of Resistance Zones: When Outer Market volume exceeds Inner Market, showing strong buying interest, but the price is stuck at a certain level and cannot rise further, this is a resistance zone. Usually, it’s the trapped positions from previous high levels. Once the price approaches their cost basis, they tend to sell to cut losses. When selling pressure accumulates to a certain point, buying power struggles to break through.

Practical Trading Tips:

• When the stock is within support and resistance zones, trade within the range: buy near support, sell near resistance.
• If the price breaks below support or above resistance, the market often enters a trending phase; follow the trend.
• New support and resistance levels will form at more distant price points.

Advantages and Limitations of Inner/Outer Market Indicators

Advantages: Inner and Outer Market data update simultaneously with transactions, reflecting active buying and selling in real-time. The concept is simple and easy for beginners to grasp. Combining order book structure and volume analysis can improve short-term judgment accuracy.

Limitations: Inner and Outer Market can be easily manipulated by big players—through placing, executing, and withdrawing orders to create false signals. Relying solely on Inner/Outer Market data can be misleading. Additionally, these indicators only reflect current trading behavior and cannot determine long-term trends. They should be used together with volume, technical analysis, and even fundamental analysis for a comprehensive view.

Final Reminder

Inner and Outer Market are tools to observe short-term changes in buying and selling forces, but the stock market is influenced by many factors. Technical analysis is just one part; investors should also pay attention to company fundamentals, industry trends, and overall economic conditions.

Understanding the meaning of Inner and Outer Market, and mastering the use of the Inner/Outer Market ratio, is only the first step. True trading skill requires repeated practice in simulation or live trading, developing the ability to discern truth from deception amid chaos and to follow the trend. No matter how tempting the Inner/Outer Market data appears, always remember: capital management and risk control are the keys to long-term survival.