Essential Concepts of Internal and External Orders You Must Know When Watching the Market: Why Does the Stock Price Rise When Internal Orders Are Greater Than External Orders?

Open a stock trading software, and besides the opening price, highest price, and lowest price, you will definitely see these two data points: Internal Volume and External Volume. Many novice investors find these numbers a bit confusing, but in fact, they reveal the true intentions of both buyers and sellers in the market—who is eager to sell and who is eager to buy.

First, understand active buying and active selling

Before a stock transaction, sellers want to raise the price (limit sell order), buyers want to push down the price (limit buy order). Once someone is willing to compromise, a trade occurs.

When a transaction occurs at the limit buy price — the seller gives up waiting and sells directly at the price the buyer has posted, and this order is counted as Internal Volume. The more internal volume transactions, the heavier the selling pressure, which is usually seen as a bearish signal.

When a transaction occurs at the limit sell price — the buyer is unwilling to wait and actively raises the bid to buy in, and this order is counted as External Volume. The more external volume transactions, the stronger the buying momentum, generally seen as a bullish signal.

For example: TSMC’s buy order at 1160 yuan for 1,415 shares, and sell order at 1165 yuan for 281 shares. If someone immediately sells 50 shares at 1160, these 50 shares go into internal volume; conversely, if someone immediately buys 30 shares at 1165, these 30 shares go into external volume.

The five-level quote is the real-time supply and demand table of the market

The five-level quote shows the top 5 buy orders (green buy orders) with the highest bid prices and the top 5 sell orders (red sell orders) with the lowest ask prices, along with the number of shares. The first row is the most important — the best bid (buy one) is the highest bid in the market, and the best ask (sell one) is the lowest ask in the market.

Note: The five-level quote is just an order display, not necessarily executed.

How to interpret the internal and external volume ratio?

Internal/External Volume Ratio = Internal Volume ÷ External Volume

• Ratio > 1 → Internal volume is larger, sellers are eager to sell, bearish signal
• Ratio < 1 → External volume is larger, buyers are chasing high, bullish signal
• Ratio = 1 → Market is balanced, consolidating and waiting

But here’s a key point: you can’t just look at the internal/external volume ratio

Many people make this mistake — seeing internal volume > external volume and assuming the stock price will fall, but in reality, it rises. Why?

Internal volume greater than external volume, yet the stock price rises — this could be the main force deliberately placing buy orders to attract retail investors to sell actively, secretly accumulating shares. For example, the stock price slightly rises, internal volume exceeds external volume, but buy orders at levels one to three keep stacking, and then the price continues higher.

External volume greater than internal volume, yet the stock price falls — this could be a trap to lure in buyers. The main force places sell orders to attract retail buying, then dumps shares themselves. For instance, during sideways movement, external volume far exceeds internal volume, but suddenly the sell orders at levels one to three increase sharply, and the price plunges afterward.

The correct approach is to combine these factors:

• External volume > internal volume + price rising + increasing volume = healthy bullish sign, short-term upward trend
• Internal volume > external volume + price falling + increasing volume = healthy bearish sign, short-term downward trend
• Opposite movements of internal/external volume and abnormal order structures = beware of manipulation by big players

Practical application of support and resistance zones

Support zone — When the stock price drops to a certain level and can’t go lower, because many are willing to buy at that price, thinking it’s cheap enough. When the price bounces off the support zone, consider bullish trading.

Resistance zone — When the stock price rises to a certain level but can’t break through, usually because previous high-cost buyers are unwilling to take losses and start selling as the price approaches, forming a wall of selling pressure.

Trading strategies:

• Go long near support zones, sell near resistance zones
• Break below support or above resistance → trend reversal, usually leads to a one-sided move

The pros and cons of internal and external volume must-know

Advantages:

• Real-time, updates simultaneously with transactions
• Simple concept, easy to learn
• When combined with order book structure and volume, accuracy improves

Disadvantages:

• Easily manipulated by big players (placing and withdrawing orders to create false signals)
• Only reflects short-term transactions, cannot determine long-term trend
• Using alone can lead to distortions

Conclusion

The essence of internal and external volume is a reflection of the buying and selling mentality. Large internal volume indicates sellers are eager, large external volume indicates buyers are eager. But the stock market has no absolute truth — internal > external volume can still rise, external > internal volume can still fall, depending on factors like main capital, market sentiment, and company fundamentals.

True experts don’t blindly watch the internal/external volume ratio but treat it as a supplementary tool, combining it with technical analysis, fundamentals, and chips analysis for comprehensive judgment. Only then can you improve your win rate and avoid being caught in traps.