Recently, while watching the market, I found that many people actually don't understand what those numbers on the order book represent, especially the internal and external volumes. These two indicators look simple, but few people can really use them well.

Simply put, the essence of internal and external volumes is to distinguish who is eager to execute a trade. When a trade occurs at the price where buyers are placing orders, that trade counts as internal volume, indicating the sellers are more eager; conversely, if the trade happens at the price where sellers are placing orders, it's external volume, indicating buyers are more eager. Here's an important point: when internal volume exceeds external volume, it usually suggests that sellers are pushing the price down, and short-term downward pressure is greater.

But an interesting phenomenon occurs here. When internal volume is greater than external volume, the stock price doesn't necessarily have to fall; sometimes, it actually rises. Why is that? Because the market is influenced by many factors—it's not just trading volume, but also news, fundamentals, overall sentiment, and more. So, just looking at the ratio of internal to external volume can be easily deceived by the main players.

I often see the big players deliberately placing large buy orders to create a false impression, making retail investors think someone is absorbing the sell orders, leading them to sell, while the big players quietly accumulate shares. Or conversely, they place large sell orders to scare retail investors, while secretly buying below. Therefore, the signal of internal volume being greater than external volume must be combined with other factors like stock price position, volume changes, and order book structure to avoid traps.

A truly practical approach is to combine this with support and resistance zones. When the stock price drops to a support zone, even if internal volume exceeds external volume, if there is a large accumulation of buy orders there, it indicates that some believe the price is cheap enough, and this could be a buying opportunity. Conversely, when the price rises to a resistance zone, even if external volume looks strong, if the buying pressure can't break through that level, it often becomes a new selling point.

The five-level quote is actually the most real-time snapshot of the order book. The green on the left shows the top five buy orders (the highest bid prices), and the red on the right shows the top five sell orders (the lowest ask prices). The biggest advantage of watching the five-level quote is that it allows quick judgment of what the big players are doing—how orders are stacked, how fast they are canceled, and these details reveal market participants' intentions.

The calculation of the internal-to-external volume ratio is simple: divide the internal volume by the external volume. A ratio greater than 1 indicates more internal volume, suggesting a more bearish market sentiment; less than 1 indicates more external volume, with more bullish traders; equal to 1 suggests a balance between buyers and sellers, with the market in stalemate.

My advice is that when internal volume exceeds external volume, you should indeed be cautious, but don't panic and cut losses just because of this signal. A smarter approach is to trade back and forth between support and resistance zones—buy at support, sell at resistance. Once the price breaks through these key levels, it usually signals the start of a new trend, and at that point, the signals from internal and external volume become particularly valuable.

The biggest advantage of internal and external volume is their high immediacy; data and trades are updated simultaneously, making it accessible for beginners—easy to understand at a glance. But the downside is that they can be manipulated, are very short-term, and using them alone can lead to distortions. Therefore, the most reliable method is to analyze from multiple angles—consider technical analysis, fundamentals, and market sentiment—only then can you truly improve your trading success rate.