Recently, many beginners have been asking whether they can buy or sell when stocks hit the daily limit up or limit down. Actually, this is a common confusion. Let me share my understanding.

Simply put, a limit up is when the stock price rises to the maximum allowed for the day, and a limit down is when it falls to the minimum limit. Taking Taiwan's stock market as an example, the regulation states that daily price movements cannot exceed 10% of the previous day's closing price. For example, if TSMC closed at 600 NT dollars yesterday, today the highest it can go is 660, and the lowest is 540. On the trading screen, stocks at the limit up are marked with a red background, and those at the limit down with a green background, making it easy to identify at a glance.

When a stock hits the limit up, you can buy or sell, but there's a key difference. If you place a buy order, it may not execute immediately because many people are already waiting to buy at the limit-up price. But if you place a sell order, it will almost immediately execute because there are so many buyers. Conversely, stocks at the limit down can also be traded; buy orders are filled instantly, but sell orders need to wait in line, which is one reason some stocks can't be sold.

Regarding the issue of stocks not being sold, the lock at the limit down is especially troublesome. If a stock truly hits the limit down, the probability of it continuing to decline in the following trading days is usually high, so don’t wait until it hits the limit down to sell. The smartest approach is to quickly place a sell order during the opening auction once you suspect it might hit the limit down. Because the trading rule is "price priority, time priority," the earlier you place your order, the higher your priority, and the greater your chance of execution.

After placing an order, it's best not to cancel it easily. Many people see their stock not selling and rush to cancel and re-enter orders, but this often pushes their order to the back of the queue, making it harder to execute. My advice is to leave the order as is. Additionally, if you notice a large buy order suddenly appearing at the "buy one" level at the limit-down price, it’s likely that institutional investors are stepping in. At this point, you might consider selling along with them, but act quickly, as opportunities are usually short-lived. Another tip: in the last 10 to 15 minutes before the market closes, there can sometimes be a brief surge in liquidity, with funds coming in to buy cheap stocks. That’s also the last chance to sell on the same day.

So, how do limit up and limit down actually happen? Limit ups are usually caused by good earnings reports, large buy orders, or government policy benefits, which attract market capital. Sometimes, technical strength, high short-term borrowings, or large investors locking in their positions can also trigger limit ups. Conversely, limit downs can result from poor earnings, company scandals, industry downturns, or widespread panic, like during the COVID-19 outbreak in 2020, which caused systemic risk. Major investors starting to offload holdings, margin calls, or technical breakdowns can also easily lead to limit down.

Speaking of which, the U.S. stock market is different. They don’t have a limit-up or limit-down mechanism, but they do have "circuit breakers." Simply put, if stock prices surge or plunge excessively within a short period, the system automatically pauses trading for a while to cool off, then resumes trading. A market-wide circuit breaker is triggered if the S&P 500 drops more than 7% or 13%, causing a 15-minute trading halt. If the decline reaches 20%, trading is halted for the entire day. For individual stocks, if a stock moves more than 5% up or down in a short time, trading will be temporarily suspended.

When encountering limit up or limit down, the most important thing is to stay rational and avoid blindly chasing high or panic selling. If a stock hits the limit down but the company has no fundamental issues—just market sentiment dragging it down—it’s likely to rebound later. Holding or small-scale accumulation is the best strategy in such cases. When a stock hits the limit up, don’t rush to chase it; first, verify if there are genuine major positive news and whether the stock can sustain the subsequent rally. If unsure, it’s safest to wait and observe.

Another approach is to look at related upstream or downstream companies or similar stocks. For example, if TSMC hits the limit up, other semiconductor stocks often move in tandem. Some Taiwanese stocks are also listed in the U.S., like TSMC, which can be bought on U.S. exchanges through foreign brokers or overseas trading platforms. In summary, understanding the mechanisms behind limit up and limit down, and knowing why stocks might be hard to sell, helps you make smarter decisions during market volatility.