Master the internal and external orders with one chart — understand the secrets of reading stock order books.

When opening trading software, besides the price, you will also see two numbers: Inner Market and Outer Market. Many people get confused by these terms at first, but their core logic is simple: Who initiates the trade, whose data gets added. Want to quickly judge the short-term trend of a stock? Mastering the inner and outer market cues is enough.

The Core Logic of Inner and Outer Market — Pending Orders vs Active Trades

The stock market conducts buying and selling every day, but not all transactions are the same. Before a trade occurs, there are two types of quotes in the market:

Bid Price (the price buyers are willing to pay) and Ask Price (the price sellers are willing to sell at). When someone is truly willing to break this deadlock, the one who actively makes concessions is recorded.

When an investor actively sells at the bid price, this transaction volume is counted into the Inner Market — indicating sellers are eager and even willing to lower prices to sell. Conversely, when an investor actively buys at the ask price, the volume is counted into the Outer Market — indicating buyers are eager to chase the price.

For example: TSMC’s bid price is 1160 yuan (with 1415 lots waiting to buy), and the ask price is 1165 yuan (with 281 lots waiting to sell). If you want to sell 50 lots immediately at 1160, the order is executed directly, and these 50 lots go into the Inner Market; if you want to buy 30 lots immediately at 1165, the order is executed, and these 30 lots go into the Outer Market.

Inner and Outer Market Ratio: A Real-Time Thermometer of Buying and Selling Power

Inner-Outer Ratio = Inner Market Volume ÷ Outer Market Volume

This ratio acts like a thermometer, quickly telling you the current market sentiment:

• Ratio > 1 (Inner Market volume is larger): Sellers are actively lowering prices, market sentiment is bearish, a bearish signal
• Ratio < 1 (Outer Market volume is larger): Buyers are actively chasing prices, market sentiment is bullish, a bullish signal
• Ratio = 1: Bulls and bears are balanced, market is stalemated, waiting for the next signal

This is the core of the inner and outer market cues — remember these three ratios and their corresponding market moods, and you’ll grasp the most direct language of the order book.

Level 5 Quotes: Visualizing Inner and Outer Market Data

The first glance at the level 5 quotes in the app is actually a collection display of inner and outer market data. The left side shows Top 5 Bids (the five highest bid prices), displayed in green, and the right side shows Top 5 Asks (the five lowest ask prices), in red.

The first level is the most critical — Bid 1 is the most aggressive buyer quote, and Ask 1 is the most aggressive seller quote. The smaller the gap between these two levels (bid-ask spread), the better the market liquidity and the easier it is for trades to occur.

Note that the level 5 quotes are just order data and do not guarantee trades — orders can be withdrawn at any time.

Practical Application: Combining Inner-Outer Ratio with Price Trends for Meaningful Insights

Knowing the inner-outer ratio is useful, but you shouldn’t look at this indicator alone. Proper judgment requires combining it with the stock price position and trading volume:

Normal Bullish Signal: Outer Market > Inner Market + Price Rising + Volume Increasing
→ Buyers are actively pushing up the price, short-term momentum is strong

Normal Bearish Signal: Inner Market > Outer Market + Price Falling + Volume Increasing
→ Sellers are actively selling, short-term downward pressure is high

Beware of Fake Bullish Signals: Outer Market > Inner Market, but price does not rise or even falls, volume fluctuates
→ Possibly the main force is placing large sell orders to lure retail investors to buy actively, while secretly selling off

Beware of Fake Bearish Signals: Inner Market > Outer Market, but price does not fall or even rises, volume fluctuates
→ Possibly the main force is placing large buy orders to attract retail investors to sell actively, while secretly accumulating

Support and Resistance Zones: Deciding Short-Term Entry and Exit Points

When inner-outer ratios are combined with support zones and resistance zones, you can precisely identify short-term trading opportunities.

Support Zone is a price level where the stock tends not to fall below after dropping — because there are large buy orders willing to step in at that price. When the price hits the support zone, and the inner market is still large but the price stabilizes, a rebound often occurs, making it a good entry point for bulls.

Resistance Zone is a price level where the stock tends to be blocked after rising — because previous buyers at high levels are reluctant to take losses and rush to sell when approaching that price. When the outer market is large but the price cannot break through the resistance zone, it becomes a new barrier.

Practical inner-outer cues: Buy at support zones when falling, sell at resistance zones when rising. If the stock breaks below support or surpasses resistance, a one-sided trend usually begins, until hitting the next support or resistance level.

Advantages and Limitations of Inner and Outer Market Data

Advantages:

• Real-time updates, reflecting buyer and seller attitudes simultaneously with trades
• Simple concept, suitable for quick short-term trend judgment
• When combined with order book structure and volume, accuracy improves

Limitations:

• Easily manipulated by the main force — through placing, withdrawing, or canceling orders to create false signals
• Only reflects the current moment, cannot determine long-term trends
• Using alone can be misleading; must be combined with other indicators

Inner and Outer Market Are Not All-Powerful; Fundamentals Are the Foundation

Inner-outer ratio and support/resistance zones are part of technical analysis, helpful for short-term judgment, but financial investment should not rely solely on order book data. The company’s fundamentals, overall economic environment, and major news events — these factors also directly influence stock price movements.

Mastering the inner and outer market cues, combined with fundamentals and macro changes, is the key to increasing your success rate.