Recently, a friend asked me what the inside and outside volumes on trading software actually are. In fact, these two indicators are quite important for short-term trading. Today, I’ll share my understanding with everyone.

Simply put, inside and outside volumes are used to distinguish who is more eager to execute a trade. Before a stock transaction, sellers will place ask orders to push the price higher, while buyers will place bid orders to push the price lower. When a trade occurs at the bid price, it’s considered inside volume, indicating sellers are more eager to unload; when a trade occurs at the ask price, it’s considered outside volume, indicating buyers are more eager to chase in.

For example, suppose the bid price is 1160 yuan with 1,415 lots, and the ask price is 1165 yuan with 281 lots. If I want to sell immediately, I would sell at 1160, and these 50 lots are counted as inside volume. Conversely, if I want to buy immediately, I would buy at 1165, and these 30 lots are counted as outside volume. Got it? It’s basically about who actively matches the other side’s orders.

You’ve probably seen the five-level quotes, right? The green five-level bid on the left and the red five-level ask on the right, showing the top five highest bid prices and the top five lowest ask prices in the market. But note that the five-level quotes are just order placements; they don’t necessarily execute, as orders can be canceled at any time.

So, how do we interpret the inside-outside volume ratio? The formula is simple: Inside-Outside Ratio = Inside Volume ÷ Outside Volume. A ratio greater than 1 indicates more inside volume, suggesting high bearish sentiment, with sellers pushing prices down—this is a bearish signal. A ratio less than 1 indicates more outside volume, suggesting bullish sentiment, with buyers chasing prices—this is a bullish signal. A ratio equal to 1 means the buying and selling forces are balanced, and the market is in stalemate.

Here, I want to highlight an interesting phenomenon: situations where inside volume exceeds outside volume but the price doesn’t fall. Be cautious in these cases, as it could be that big players are deliberately placing buy orders to lure retail investors into selling, secretly accumulating shares. For example, if the price slightly rises, inside volume is significantly higher than outside volume, but the top bid orders (bid one to bid three) keep stacking up, that’s suspicious. Conversely, if outside volume exceeds inside volume but the price doesn’t rise, it could be fake bullishness—main players are placing sell orders to induce retail investors to buy, secretly offloading shares.

Therefore, simply looking at the inside-outside ratio isn’t enough. You also need to consider the stock’s price position, trading volume, and order book structure for a comprehensive judgment. If outside volume exceeds inside volume and the price is rising, that’s a healthy bullish sign; if inside volume exceeds outside volume and the price is falling, that’s a healthy bearish sign. But if inside volume exceeds outside volume and the price doesn’t fall, or outside volume exceeds inside volume and the price doesn’t rise, you should be alert to manipulation by big players.

I often combine support and resistance zones in my trading. When a stock drops to a certain level and can’t go lower, that’s a support zone—usually indicating many people are willing to buy at that level. Conversely, when a stock rises to a certain level and can’t go higher, that’s a resistance zone—often because previous buyers at high prices don’t want to lose money and are waiting for an opportunity to sell. My strategy is to buy at support zones and sell at resistance zones.

However, honestly, inside and outside volume also have their drawbacks. The biggest issue is that they can be easily manipulated by big players. They can use a combination of placing orders, active trades, and canceling orders to artificially create false data. Moreover, inside and outside volumes only reflect current trading behavior and are not very helpful for long-term trends. So, never rely solely on the inside-outside ratio; always combine it with trading volume, technical analysis, and fundamental analysis.

In the end, although situations where inside volume exceeds outside volume but the price doesn’t fall seem strange, by combining other indicators and market sentiment, you can determine whether it’s genuine accumulation or manipulation by big players. No single indicator can guarantee success in trading; it’s essential to consider multiple factors like company fundamentals and economic environment. Proper preparation can improve your chances. If interested, you can practice with a demo account to experience real trading markets.