Recently, someone asked me if they can still sell when a stock hits the daily limit up. Honestly, this is a question many beginners find confusing. Today, I’ll organize my understanding of limit up and limit down and explain what these extreme market situations are all about.

First, the conclusion: you can buy or sell at the limit up, and the same goes for the limit down. But the key is whether your order can be executed.

What are limit up and limit down? Simply put, limit up is when the stock price rises to the maximum allowed for the day, and limit down is when it falls to the minimum. Taking the Taiwan stock market as an example, the rule is ±10% of the previous day’s closing price. For example, if TSMC closed at 600 yesterday, today the highest it can go is 660, and the lowest is 540. Once these limits are reached, the stock price basically freezes.

How to determine if a stock is at limit up or limit down? Very simply, look at the price chart. If the stock price is completely still, forming a straight line, it’s almost certainly at limit up or limit down. On the Taiwan stock market, stocks at limit up are marked with a red background, and those at limit down with a green background.

Now, back to the core question: can you sell at the limit up? The answer is yes. But it depends on the situation. When a stock hits the limit up, there are many buyers and few sellers. So if you place a sell order, it will almost immediately be executed. But if you place a buy order, you’ll need to queue because many people are waiting to buy at the limit-up price.

Conversely, at limit down, many want to sell and few want to buy. So if you place a buy order, it will be filled immediately, but a sell order will have to wait. This is the flip side of whether you can sell at the limit up — at limit down, you might need to queue to sell.

If you really encounter a limit down, my advice is this: once you suspect the stock might hit the limit down, don’t wait until it actually does to sell. Instead, place your order during the pre-market auction. Because the trading rule is “price priority, time priority,” the earlier you place your order, the higher your priority, and the better your chances of execution. After placing the order, don’t rush to cancel and re-place it — many people do this and end up at the back of the queue.

The reasons for hitting the limit up are usually positive news, hype around themes, technical strength, or large investors locking in their positions. Limit down is often caused by negative news, market panic, major players offloading, or technical breakdowns.

A quick note: the US stock market is different from Taiwan’s. There are no limit up or limit down rules, but there is a “circuit breaker” mechanism. Simply put, if the stock price moves too wildly, trading will be temporarily halted to cool down the market. If the S&P 500 drops more than 7% or 13%, trading is paused for 15 minutes; if it drops to 20%, the market closes for the day. Individual stocks also have circuit breakers — if they move more than 5% in a short period, trading is temporarily halted.

When facing a limit up or limit down, the most important thing is to stay rational. Beginners often make the mistake of blindly chasing gains or panic selling. Seeing a limit up, they rush to buy; seeing a limit down, they rush to sell — often ending up with losses. My advice is to first understand why the stock hit the limit up or down, then decide whether to enter.

If a stock hits the limit down but the company itself is fine and only market sentiment is dragging it down, it’s likely to rebound later. Holding or adding a small position in such cases is wiser. Conversely, don’t rush to chase a limit up; first check if there’s real strong support. If not, it’s better to wait and see.

Another approach is to trade related stocks. When one stock hits the limit up, related upstream or downstream companies or similar stocks often move together. For example, if TSMC hits limit up, other semiconductor stocks usually perform well. If you want more options, you can also consider buying Taiwanese companies listed in the US, like TSMC (TSM), which can be bought through American brokers or via overseas trading platforms — quite convenient.