Recently, there has been frequent discussion in the stock market about limit-ups and limit-downs, especially among retail investors who are trapped. The most common problem they face is not being able to sell at the limit-down price—it’s really quite frustrating. Today, I want to talk with everyone about what’s really behind this phenomenon.

First, let’s clarify what limit-up and limit-down mean. Simply put, a limit-up is when the stock price rises to that day’s ceiling, and a limit-down is when it falls to that day’s floor. Taking Taiwan’s stock market as an example, the rule is a 10% limit up or down from the previous day’s closing price. For example, if TSMC closed at 600 NT dollars yesterday, today its highest price can only go to 660 NT dollars, and its lowest can fall to 540 NT dollars. When the stock price touches this limit, the price gets locked, the price chart turns into a straight line, and it’s also easy to spot on the trading screen—limit-ups are marked with a red background, and limit-downs are marked with a green background.

Many people think that when a stock hits the limit-up or limit-down, it can’t be traded anymore. In reality, that’s not true. At a limit-up, you can still place orders. People who want to buy can place buy orders, and people who want to sell can place sell orders. The issue is that the difficulty of getting trades executed is very different. If you want to buy when the stock is at the limit-up, you have to queue, because lots of people are waiting at the limit-up price to buy. But if you place a sell order, it usually gets executed almost immediately, because there are so many buyers.

The situation is reversed for limit-down. Buyers get their trades filled quickly because there are a lot of sellers. That’s also exactly why selling at the limit-down price becomes a nightmare for retail investors. When a stock hits the limit-down, sell orders pile up while buy orders are almost empty. Your sell order has to wait in line, and you have no idea when it will finally be your turn. Even worse, after a limit-down, the stock usually keeps falling—so the later you sell, the bigger your loss gets.

So how can you avoid the predicament of not being able to sell at the limit-down price? The most important thing is to place orders quickly during the opening call auction. The trading rule is “price priority, time priority.” The earlier you place your order, the higher your position in the queue, and the greater your chance of getting filled. Once your order is successfully placed, don’t rush to cancel and re-enter. Many people get anxious when nothing has traded yet, but that actually results in them being placed at the very end of the queue, making it even harder to get filled.

Another small tip is to watch the order size of buy orders at the limit-down price. If a large buy order suddenly appears, it’s very likely that the major players are stepping in to take over. In that case, you might consider selling along with them, but you need to act fast because the opportunity may vanish quickly. Also, many limit-down stocks will show a brief release of liquidity during the last 10 to 15 minutes before the market closes. Money comes in to pick up bargains, and this is also the last chance to sell on that day.

Limit-up or limit-down moves usually have reasons behind them. A limit-up might happen because the company releases strong earnings reports, receives big orders, or because market funds go wild speculating on a popular theme such as AI concept stocks. A limit-down, on the other hand, often comes from bad news, a disastrous earnings report, company scandals, or the overall market falling into panic. Sometimes it’s the major players dumping shares, and retail investors end up getting squeezed. Margin calls can also trigger limit-downs—just like the shipping stock crash back then, when the stock price fell and triggered margin calls, causing sell pressure to surge instantly.

With that said, the situation in the US stock market is different. The US doesn’t have limit-up/limit-down restrictions, but it has a circuit breaker mechanism. When the S&P 500 index drops by more than 7% or 13%, the entire market takes a 15-minute break; if it drops to 20%, trading shuts down for the day. Individual stocks also have circuit breakers—if their price rises or falls by more than 5% in a short time, trading is temporarily suspended.

When you encounter limit-ups or limit-downs, the most important thing is to stay rational. The most common mistake beginners make is blindly chasing rallies or panicking and selling. You should first figure out why this stock hit the limit-up or limit-down, and only then decide whether to enter. If there is truly a major piece of positive news providing strong support, then chasing it may not be too late. But if it’s just short-term sentiment-driven volatility, staying on the sidelines is often the best choice.

Another strategy is to consider trading related stocks. When TSMC hits the limit-up, other semiconductor stocks usually move along with it. Or if you have a US stock account, some Taiwanese companies are also listed in the US—such as TSMC’s ADRs—so trading can be more flexible. The key is not to get stuck thinking solely around that one stock’s limit-up or limit-down. There are always other opportunities in the market.