A friend just asked me how to understand the internal and external order books on the stock market, and I realized that many people are still a bit confused about these basic concepts. Instead of explaining a bunch of theories, I’d rather share a practical tip for reading the internal and external orders with everyone.

It’s actually simple: the internal order represents sellers eager to sell, and the external order represents buyers eager to buy. When the stock price trades at the bid price, it counts as an internal order; when it trades at the ask price, it counts as an external order. It sounds easy, but to truly use this to judge short-term trends, you need to understand the logic behind it.

My experience is that you can’t just look at the numbers of internal and external orders alone; you also need to see how they perform in conjunction with the stock price movement. For example, if the external orders are obviously larger than the internal orders, and the stock price is rising along with increased volume, that’s a healthy bullish signal. Conversely, if the internal orders are larger than the external, and the stock price is falling with increased volume, that’s a healthy bearish signal.

But there’s a trap to watch out for. Sometimes you’ll see the external orders far larger than the internal, yet the stock price doesn’t rise but instead falls, or it stays flat for several days. This is likely a manipulation by the big players, creating a false appearance by placing orders to lure retail investors into following, while secretly offloading shares. The opposite can also happen: internal orders larger than external, but the price still rises. This could be the big players intentionally placing buy orders to attract retail investors to sell, while they are accumulating shares. Therefore, reading the internal and external order book must be combined with volume, price position, and order book structure to avoid being fooled.

I also noticed a detail—the concept of support and resistance zones. When the stock price drops to a certain level and can’t go lower, that area usually has many buyers wanting to buy, which is a support zone. If the internal orders are larger than external ones near a support zone, it might actually be a good entry point because buying interest has already accumulated heavily. Conversely, above a resistance zone, if external orders are still large but the price is being blocked from rising, it indicates many people want to sell to cut losses, so be cautious.

The five-level quote actually shows the top five bid and ask prices—the green on the left is the buy side, and the red on the right is the sell side. Remember, these are just orders, not guaranteed to execute, as people can cancel anytime. So, the core of reading internal and external orders is: watch who’s more eager; the side that’s more aggressive usually determines the short-term direction.

Of course, technical analysis has its limitations. Internal and external orders reflect current trading behavior but can’t predict long-term trends, and they can be easily manipulated by big players. I recommend using internal and external order data as a short-term auxiliary tool, but never rely on it alone. It should be combined with volume, candlestick patterns, fundamental news, and other indicators for a comprehensive judgment.

Finally, I’ll share a practical trading strategy: operate between support and resistance zones. When the price hits support, consider going long; when it reaches resistance, consider selling or shorting. But if the stock breaks below support or above resistance, it usually signals a trend reversal, and the price may continue to fall or rise until it hits the next support or resistance level.

Honestly, there’s no absolute winning method in stock investing; internal and external orders are just tools. To improve your success rate, you need to spend more time studying, practicing, and managing risk. If interested, you can start with a demo account to practice for a while, get familiar with the market and indicator combinations, then move on to real trading with actual money.