Recently, I found that many friends feel a bit confused when looking at trading software, especially about those numbers, like the internal market, external market, and the internal-external volume ratio. Actually, understanding these can help you quickly judge where short-term funds are flowing.

Simply put, the essence of internal and external volume is to see who is more eager to execute trades. Before a stock trade, the seller posts a limit price to raise the price, and the buyer posts a limit price to push it down. When the stock price directly trades at the bid price, these sold shares are considered internal volume, indicating the seller is more urgent, a bearish signal. Conversely, if the trade occurs at the ask price, the bought shares count as external volume, showing buyers are more aggressive, a bullish signal.

For example, TSMC has a bid at 1160 yuan with 1,415 shares wanting to buy, and an ask at 1165 yuan with 281 shares wanting to sell. If you sell 50 shares directly at 1160, those 50 shares go into the internal volume, meaning you, as the seller, are actively matching. Conversely, if you buy 30 shares directly at 1165, those 30 shares go into the external volume, meaning you, as the buyer, are actively matching.

The five-level quotes combine real-time data from internal and external volume. The green on the left shows the top five bid prices (highest five buy orders), and the red on the right shows the top five ask prices (lowest five sell orders). These are just orders, not necessarily executed trades.

What truly matters is the internal-to-external volume ratio, which is the internal volume divided by the external volume. When the external volume exceeds the internal volume and the ratio is less than 1, it indicates buyers are more active, and market sentiment is bullish. Conversely, if the internal volume exceeds the external volume and the ratio is greater than 1, sellers are more urgent, and bearish sentiment is rising. A ratio of exactly 1 means a balance between buyers and sellers, and the market is in stalemate.

But there's a trap here: in short-term trading, just looking at internal and external volume can easily be deceived by big players. For example, if external volume exceeds internal volume but the stock price is still falling, and the trading volume fluctuates wildly, it might be that big players are deliberately placing sell orders to lure you in, secretly offloading shares. Conversely, if internal volume exceeds external volume but the price isn't falling—instead it rises—it could be that big players are placing buy orders to trick you into selling, absorbing your shares.

Therefore, it's best to combine internal and external volume with support and resistance zones. When the stock price hits a level and can't go lower, it indicates a support zone where buyers are willing to step in. If external volume exceeds internal volume at a certain price and the price can't push higher, that's a resistance zone. In practice, traders buy at support zones and sell at resistance zones, operating within the range.

The advantage of internal and external volume is that they are real-time, simple concepts that quickly reflect the market participants' mood. But they also have obvious drawbacks: they can be manipulated, only reflect short-term trends, and can be distorted if used alone. So, they should be combined with trading volume, technical analysis, and fundamental analysis—no single indicator can do all the work.

In short, internal and external volume are tools to measure the buying and selling strength in the market, helping you quickly understand the urgency of both sides. But investing ultimately still depends on analyzing a company's fundamentals and the macroeconomic environment. Being well-prepared increases your chances of success. If you're interested, you can practice on a simulated trading platform, using virtual funds to experience real market conditions—learning and practicing simultaneously will be more effective.