Recently, while watching the market, I found that many novice investors have only a superficial understanding of the internal and external volume data on the trading surface. In fact, these two indicators can help us quickly judge the short-term capital flow and buying and selling strength.

In simple terms, the difference between internal and external volume lies in who is actively driving the transactions. When the stock price transaction occurs at the bid price, this volume counts as internal volume, indicating that sellers are more eager to unload. Conversely, when the transaction occurs at the ask price, it is external volume, showing that buyers are willing to pay more to chase in. It sounds a bit complicated, but in actual market viewing, it’s quite intuitive—large internal volume indicates sellers are eager, large external volume indicates buyers are eager.

My own experience is that if you want to quickly understand the current buying and selling atmosphere, just look at the five-level quotes to get a rough idea. The five bids on the left (usually green) are the top five highest buy orders, and the five asks on the right (usually red) are the lowest five sell orders. These are all pending orders, not necessarily executed, but they reflect market expectations.

What’s truly practical is looking at the internal and external volume ratio. The calculation is internal volume divided by external volume. A ratio greater than 1 indicates more internal volume, suggesting a bearish market sentiment, with sellers pushing prices down; a ratio less than 1 indicates more external volume, with buyers chasing prices, usually seen as a bullish signal. A ratio equal to 1 means a balance of buying and selling forces, and the market is in consolidation.

But here’s a key point—internal and external volume data can be easily manipulated by big players. I’ve seen many cases where external volume looks large but the stock price doesn’t rise at all, or even falls. At such times, caution is needed as it might be a “false bullish” signal—big players deliberately place sell orders to lure retail investors in, while secretly unloading. Conversely, there are also “false bearish” signals. So, relying solely on the internal/external volume ratio can be deceiving; it must be combined with price position, volume, and fundamental analysis.

My more common trading logic is to combine support and resistance zones. When a stock falls to a support zone, if external volume exceeds internal volume, it indicates buyers are willing to enter at low prices, and going long can be considered. Conversely, when the stock rises to a resistance zone, if internal volume starts to increase, it shows someone wants to unload at high prices, and it might be time to reduce positions or short.

Honestly, the advantage of internal and external volume is its high immediacy, allowing quick reflection of active market behavior, and the concept is simple enough for beginners to grasp quickly. But the obvious downside is that it can be easily manipulated, only reflects short-term trends, and can be distorted if used alone. Therefore, my suggestion is to treat it as an auxiliary tool, combined with volume, technical analysis, and fundamentals to improve judgment accuracy.

There is no single indicator in the financial market that can dominate everything; internal and external volume are just parts of technical analysis. True investing also requires considering company fundamentals and economic cycles. Doing thorough homework can improve your win rate. If you want to practice, many platforms offer demo accounts where you can experience with virtual funds at minimal cost.