The invention relates to a traditional Chinese medicine for external use and for treating psoriasis and a preparation method thereof. The medicine contains (by weight portion) mercurous chloride, natural oindigo, borneol, pearl powder, oyster, dragon's blood, sulfur, scutellarta root, herb of hairyvein agrimonia, safflower, root of common peony, lumbricus, cicada shell and turtle blood or goose blood. When the medicine is prepared, the raw materials are chosen according to the portion, and natural oindigo, oyster, dragon's blood, scutellarta root, herb of hairyvein agrimonia, safflower, root of common peony, lumbricus and cicada shell are ground, sieved by a sieve of 80 meshes and then the medicine is soaked in pure grain alcohol of 65 percent of the same weight. After soak, the medicines are taken out. The mercurous chloride, borneol, pearl powder and sulfur are also ground, sieved by a sieve of 200 meshes and is mixed and stirred after turtle blood or goose blood of certain portion is added, and at last, the medicines after mixing and stirring are mixed with the medicines after soak to be used. The medicine is applied to the affected part, and the nidus of psoriasis can be eradicated in short time. The medicine also has the advantages of low therapeutic fees, fast effect and little possibility of recurring if the patient controls diet and avoids sharp flavor food in therapeutic process.