Recently, someone asked me whether it's possible to buy or sell when a stock hits the limit up or limit down. I realized that many beginners are still quite confused about this issue. So today, I’ll organize my understanding to help everyone clarify their thinking.

First, let’s state the conclusion: both limit up and limit down can be traded, but the difficulty of execution is completely different.

When a stock hits the limit up, buy orders have already lined up to the horizon; if you want to place a buy order, you basically have to wait in line, and the probability of execution is low. But if you want to sell, it almost executes instantly because there are so many buyers. Conversely, at the limit down, the situation is reversed: many want to sell, so your sell order might have to wait, but buy orders are almost instantly filled.

That brings me to a key question—many people panic and rush to sell when a stock hits the limit down, but actually, this is the biggest test of your mentality. If a stock hits the limit down but the company itself has no major issues, just dragged down by market sentiment or short-term negative news, it’s very likely to rebound later. In such cases, instead of rushing to sell at the limit down price, it’s better to observe for a few days first.

My experience is that the best time to sell a stock that’s locked at the limit down is during the opening auction. Because the trading rule is “price priority, time priority,” placing your order early gives you a better chance of execution. If your order is successfully placed, don’t rush to cancel and re-place it, as that might push you to the back of the queue. Another tip is to watch the “buy one” order volume at the limit down price; if there’s suddenly a large amount of buy orders, it’s likely that the big players are stepping in. Following this, your chances of successful selling increase. Also, in the last 10 to 15 minutes before the market closes, there’s often a brief liquidity release, which is the last window for an exit that day.

Now, let’s discuss buying strategies. When you see a stock hit the limit up, don’t blindly chase it. First, understand why it’s up. Is it due to a major positive news, or just short-term hype? This is very important. For example, if TSMC gets big orders from Apple or NVIDIA, that’s a real positive, and the stock may continue to rise. But if it’s just market funds chasing hot topics like AI concepts, it’s easy for the stock to be knocked down again after hitting the limit.

Technical analysis is also something I often look at. If a stock falls below the 5-day moving average, can you buy? My view is that breaking below the 5-day MA itself isn’t a buy signal but a warning. If it also falls below key supports like the monthly or quarterly moving averages, it becomes even more dangerous, often triggering stop-loss selling pressure, and the stock may hit the limit down. Conversely, if the stock breaks out of a long-term consolidation zone with high volume, that’s a genuine buying opportunity.

Another strategy is trading related stocks. When a leading stock hits the limit up, related upstream or downstream companies, or similar stocks, often move together. For example, if TSMC hits the limit up, other semiconductor stocks will also be boosted. Instead of trying to chase the already limit-up stock, it might be more effective to switch to its related stocks, increasing your success rate.

Finally, a note on the difference between Taiwan stocks and US stocks. Taiwan stocks have limit up and limit down restrictions, with individual stocks not allowed to move more than 10% from the previous day’s closing price. But US stocks don’t have limit up/down; they use circuit breakers. When the S&P 500 drops more than 7%, the market pauses for 15 minutes; at 13%, another pause; and if it drops 20%, trading halts for the day. Individual stocks also have circuit breakers—if they move more than 5% in a short period, trading is temporarily suspended.

In summary, when encountering limit up or limit down, the most important thing is to stay rational. Don’t let emotions drive you. First, understand the reason behind the stock’s rise or fall, then decide whether to chase, hold, or wait and see. Only then can you survive longer in the stock market.