Recently, someone asked me whether you can actually buy or sell when a stock hits the limit up or limit down. This is a question that many beginners get stuck on. Let me start with the conclusion: yes, you can buy and sell—but the key is whether your order can actually be filled, and whether the timing is right.

Let me briefly explain how limit up and limit down work. In Taiwan’s stock market, regulators require that a stock’s daily price movement cannot exceed 10% of the previous day’s closing price. For example, if TSMC closed at 600 NT dollars yesterday, then today its highest price can only reach 660 NT dollars, and its lowest price can only fall to 540 NT dollars. Once the stock price touches this upper limit or lower limit, you’ll see it as limit up or limit down. When you watch the market, it’s actually easy to tell: limit up stocks are marked with a red background, limit down stocks with a green background, and the price chart turns into a straight line—you can’t move it at all.

Buying at limit up doesn’t necessarily mean your order will get filled, but selling is usually not a problem, because there are far more people who want to buy than people who want to sell. Conversely, at limit down, buy orders are basically filled immediately, but sell orders have to queue. That’s the result of an imbalance in supply and demand in the market.

Speaking of limit down, I want to specifically talk about a problem many people have run into: how to sell when a stock is locked at the limit down. This really is a technical skill. Once a stock hits the limit down, the chances are usually high that it will continue to fall over the next few trading days—so absolutely don’t wait until it truly hits the limit down before you try to get out. By then, you’ll only end up selling at progressively lower prices. The smartest approach is to notice when the stock might be about to hit the limit down and quickly place a sell order during the call auction period. 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 execution.

I’ve seen too many people place an order, notice it doesn’t get filled, and then get anxious and cancel and re-submit—only to end up at the very back of the line, making it even harder to get filled. So after placing an order, it’s best not to touch it; leave it as it is so it can execute on its own. If you truly get stuck at the limit down price, you can watch whether the “bid one” order volume suddenly surges—that may indicate major players are stepping in. In that case, you could consider selling along with them, but you must act fast because the opportunity is very brief. Also, many limit-down stocks show a wave of liquidity release during the last 10 to 15 minutes before market close. If funds come in to pick up bargains, that can also be the final window for selling that day.

There are actually many reasons that cause limit up and limit down. Limit up is usually driven by positive news—things like strong earnings, receiving large orders, policy tailwinds, or market funds chasing popular themes. For example, AI-related stocks, biotech stocks, and similar categories. Technical strength can also trigger a limit up—such as the stock price breaking out of a long-term consolidation range with a surge in volume and rallying sharply, or when the shares are effectively locked by large holders, leaving the market with virtually no shares available for sale.

The reasons for limit down are more severe. Bad earnings, negative news, rising market panic, and heightened fear can all lead to a limit down. Even more frightening is when major players start dumping positions or when margin calls trigger forced liquidations, leaving retail investors with no time to escape. Technical breakdowns are also common causes. If the price breaks below key support—like the monthly or quarterly moving averages—it often triggers stop-loss selling pressure, and then it directly hits the limit down.

When you encounter limit up or limit down, my advice is to first stay calm and judge the situation. The most common mistake beginners make is blindly chasing highs or panic selling lows. When you see a limit up, you rush to buy; when you see a limit down, you rush to sell—and the result is that you end up trapped. You should first figure out why the stock is hitting the limit up or limit down, and only then decide whether to enter. If the limit down is mainly due to market sentiment being dragged down or short-term factors, and the company itself is fine, then it’s very likely to rise back later—in that case, holding or making a small amount of initial position may actually be the best strategy.

When you see a limit up, don’t rush to chase it either. First, check whether there’s truly a major positive catalyst, and whether that catalyst can hold and support the stock to keep rising. If you think it can’t be sustained, standing by and observing is the safest choice. Another trading idea is that when a stock hits limit up because of positive news, you may consider buying its upstream or downstream suppliers or similar stocks in the same category—this can help spread and diversify risk.

Finally, a quick note: the US stock market does not have a limit up/limit down concept. They use circuit breakers instead. When the market drops more than 7% or 13%, the entire market pauses for 15 minutes to cool off. If it drops all the way to 20%, the market closes for the day. For individual stocks, if they rise or fall by more than 5% within a short period, trading may also be halted for a while. The purpose of this system is to prevent excessive market volatility and give investors an opportunity to react calmly.