Recently, many novice investors have been a bit confused by stock order book data, especially the five-level quotes, including the internal and external volumes, and the commonly discussed internal/external volume ratio. It all feels quite mysterious. Actually, these indicators aren’t that complicated; once mastered, they can help you quickly judge the buying and selling strength in the market, and even observe short-term capital movements.

Let's start with the five-level quotes. When you open your broker’s app, you'll see this screen—on the left, the green is the top five bid prices, representing the five highest buy orders; on the right, the red is the top five ask prices, representing the five lowest sell orders. These are all pending orders; note that they may not necessarily be executed, as they can be canceled at any time.

After understanding the five-level quotes, the internal and external volumes become easier to grasp. The core logic is actually about seeing who is more eager—when the stock price trades at the bid price, the volume sold is recorded as internal volume, indicating that sellers are more eager to sell and willing to meet buyers’ prices. Conversely, when the trade occurs at the ask price, the buying volume is the external volume, showing that buyers are willing to pay more to chase the price. Simply put, more internal volume indicates stronger selling pressure, while more external volume indicates strong buying momentum.

Since we have internal and external volumes, investors naturally compare the two. The internal/external volume ratio is calculated by dividing internal volume by external volume. A ratio greater than 1 indicates more internal volume, suggesting a bearish market sentiment; a ratio less than 1 indicates more external volume, implying bullish sentiment; a ratio equal to 1 means a balance between buyers and sellers, a consolidation phase.

However, it’s important to note that relying solely on the internal/external volume ratio can be easily deceived. I’ve personally experienced stocks moving sideways, with external volume clearly larger than internal volume, yet the sell orders at levels one to three kept increasing, and finally the stock suddenly plunged—that’s a tactic used by big players to fake out retail investors with false bullish signals. Similarly, if internal volume exceeds external volume but the stock price rises, it could be that the big players are intentionally placing buy orders to lure in short sellers, while actually accumulating shares.

Therefore, when using internal and external volumes to judge, you must also consider the stock’s price position, volume changes, and order book structure. If external volume exceeds internal volume and the price is rising, combined with increasing volume, that’s a healthy bullish signal. Conversely, if internal volume exceeds external volume and the price is falling, with volume increasing, that’s a true bearish signal.

Another practical tip is to combine support and resistance zones. When a stock drops to a certain price level and then stops falling, that’s a support zone, usually indicating strong buying interest at that level. Conversely, if a stock rises to a certain price and stalls, that’s a resistance zone, possibly where previous high-cost buyers want to cut losses. My approach is to trade within these zones—buy near support, and reduce or short near resistance.

However, internal and external volumes also have obvious shortcomings. The biggest issue is that they can be manipulated by big players, who can use a combination of placing orders, executing trades actively, and canceling orders to artificially create false internal/external volume data. Moreover, internal and external volumes only reflect current trading behavior; they cannot determine long-term trends. Relying solely on the internal/external volume ratio can easily lead you astray.

Ultimately, internal and external volumes are just tools in your technical analysis toolbox. True investing also requires analyzing fundamentals, economic conditions, market sentiment, and news. I recommend combining internal/external volume, support and resistance levels, volume analysis, and understanding the company’s fundamentals to improve your success rate. If you’re a beginner, it’s best to practice with a demo account first, experiencing real market conditions, and only start trading with real money once you have gained some practical experience.