Recently, a friend asked me whether stocks can be bought or sold at the limit-up or limit-down prices, and I realized that many beginners are truly confused about this. Actually, limit-up and limit-down essentially refer to the extreme fluctuations of stock prices, indicating that the market is either all buying or all selling, a one-sided situation.

First, let's talk about what a limit-up means. Simply put, a limit-up is when a stock's price has reached the maximum increase allowed for the day. In Taiwan stocks, this is set at 10% of the previous day's closing price; once exceeded, trading is locked. Conversely, a limit-down is when the price hits the lower limit and is also locked. For example, if TSMC closed at 600 NT dollars yesterday, today it can only rise to a maximum of 660, and fall to a minimum of 540. Once these levels are reached, trading is halted.

How to tell if a stock is at a limit-up or limit-down? It's quite simple: the price chart becomes a straight line, with no movement in the stock price. On the Taiwan stock market, limit-up stocks are marked with a red background, and limit-down stocks with a green background, making it easy to distinguish. I often see stocks at limit-up with buy orders piled up on one side, while sell orders are almost empty, because the demand to buy far exceeds the supply to sell. Conversely, at limit-down, there are many sell orders and few buy orders.

Can you buy or sell at the limit-up? Of course, you can place orders normally. However, there's a catch: if you place a buy order, it may not be filled immediately because there are already many people waiting to buy at the limit-up price. But if you place a sell order, it will almost be executed instantly because buy orders are overwhelming at that moment. The situation is reversed at limit-down: buy orders are filled immediately, but sell orders may have to wait.

What I fear most is when a stock is locked at the limit-down price. Usually, after hitting the limit-down, the probability of further decline is high. You should only consider escaping once it truly hits the limit-down, as prices tend to fall even lower the more you sell. So, if you suspect the stock might hit the limit-down, you should quickly place a sell order during the opening auction. The trading rule is "price priority, time priority": the earlier you place your order, the higher your chance of execution. After placing an order, don’t cancel it lightly; many people see they haven't sold and rush to withdraw and re-place orders, which only pushes them to the back of the queue, making it harder to execute.

Sometimes, stocks at limit-down will show a brief burst of liquidity about 10 to 15 minutes before the market closes. This is the last chance to escape that day. Also, pay attention to the "buy one" order volume at the limit-down price. If suddenly a large number of buy orders appear, it could be the main players stepping in to buy, and you might consider selling along with them, but act quickly.

Limit-up is usually caused by positive news, such as strong earnings reports, large orders, favorable policies, or market funds speculating heavily on hot topics. Technical strength and institutional locking of chips can also trigger limit-ups. On the other hand, limit-downs are caused by negative news, earnings disappointments, company scandals, or market panic (like during the COVID outbreak). Major investors starting to offload, margin calls, or technical breakdowns can also easily trigger limit-downs.

The US stock market doesn’t have limit-up or limit-down rules; instead, they use circuit breakers. If the market drops more than 7%, trading pauses for 15 minutes; a 13% drop triggers another 15-minute halt; a 20% decline results in a full market close for the day. For individual stocks, a sudden move of more than 5% within a short period can also lead to trading suspension.

When encountering limit-up or limit-down situations, the most important thing is to stay rational and avoid blindly chasing highs or selling lows. First, understand why the stock is at the limit. If a limit-down is just due to market sentiment and the company itself has no issues, it’s likely to rebound later. Holding or adding a small position might be the best move. When seeing a limit-up, don’t rush to buy; first confirm whether there is genuine strong news supporting the price, otherwise, it’s safest to wait and observe.

Another approach is to trade related stocks. When TSMC hits a limit-up, other semiconductor stocks often move in tandem. Some Taiwanese stocks are also listed in the US, like TSMC (TSM), which can be bought on US exchanges through foreign brokers or overseas trading platforms. The key to investing is to stay calm, understand what a limit-up or limit-down means, and make smarter decisions amid market volatility.