Recently, a beginner asked me how to read the market, especially regarding the inside and outside volume. I realized that many people open their trading software and see the numbers for inside and outside volume completely confused. Actually, once you understand this, it can help you quickly judge what short-term funds are doing.

Simply put, the essence of inside and outside volume is to see who is more eager. Before a stock transaction, the seller wants to raise the price (ask price), and the buyer wants to push down the price (bid price). When the transaction occurs at the bid price, the number of shares sold is called inside volume, indicating sellers are more eager to unload. Conversely, when the transaction occurs at the ask price, the number of shares bought is called outside volume, indicating buyers are eager to chase higher.

For example, a stock has 1,415 shares at a bid of 1160 yuan and 281 shares at an ask of 1165 yuan. If you want to sell immediately at 1160, a transaction of 50 shares occurs, which is inside volume. If you want to buy immediately at 1165, a transaction of 30 shares occurs, which is outside volume.

Regarding how to interpret the ratio of inside to outside volume, it’s actually a simple division. The inside-outside volume ratio equals inside volume divided by outside volume. A ratio greater than 1 indicates more inside volume, showing market bearish sentiment, with sellers eager to sell, which is a bearish signal. A ratio less than 1 indicates more outside volume, with buyers chasing higher prices, usually seen as a bullish signal. A ratio of exactly 1 means a balance between bulls and bears, and the market is in stalemate, requiring waiting for clearer signals.

But here’s a key point: how to interpret the inside-outside volume ratio without getting fooled? Just looking at the ratio number can be misleading. I’ve seen too many big players intentionally placing orders to lure retail traders. For example, if outside volume is obviously larger than inside volume, but the stock price remains flat and doesn’t rise, and the sell orders at levels one to three keep increasing, it could be fake bullishness—main players using orders to attract buyers while secretly unloading shares. Conversely, if inside volume is larger than outside volume but the stock price is rising, it could be fake bearishness—main players placing buy orders to induce retail traders to sell, while actually accumulating shares.

Therefore, the most important thing is to combine the stock’s price position, trading volume, and order book structure. When outside volume exceeds inside volume and the price is rising with increasing volume, that’s a genuine bullish signal. When inside volume exceeds outside volume and the price is falling with increasing volume, that’s a genuine bearish signal.

I also use support and resistance zones in my trading. When a stock hits a support zone and can’t go lower, it indicates many people are willing to buy there, so it might be a good time to go long. Conversely, if the price hits a resistance zone and can’t go higher, it suggests some are trying to unload, so it might be time to reduce positions or go short.

Honestly, although inside and outside volume are highly real-time and simple concepts, they also have obvious drawbacks. They can be easily manipulated by big players and only reflect current transaction behavior, not long-term trends. Relying solely on the inside-outside volume ratio can lead to wrong decisions. My experience is that you must combine it with trading volume, technical analysis, and even fundamental analysis to improve your success rate.

In short, inside and outside volume are just tools. No single indicator can navigate the markets alone. Doing proper research and analyzing from multiple angles is the right investment attitude.