Recently, I’ve been asked several times, "Can you still buy stocks that hit the limit down?" So I decided to organize some of my experiences on this topic to share with everyone.

First, the conclusion: limit down stocks can be bought, but it depends on how you buy them. Many people misunderstand the phenomena of limit up and limit down, thinking that once triggered, trading is completely impossible. That’s not true.

Simply put, a limit up means the stock price hits the maximum allowed for the day, and a limit down means it hits the minimum. Taking Taiwan’s stock market as an example, the regulation states that the price change cannot exceed 10% of the previous day’s closing price. For example, if TSMC closed at 600 NT dollars yesterday, today’s maximum is 660, and the minimum is 540. When viewing the market, limit-up stocks are marked with a red background, and limit-down stocks with a green background, making them easy to identify at a glance.

So, can you buy at limit down? The answer is yes, but the difficulty of executing trades differs. When a stock hits the limit down, there are many sellers but few buyers. If you place a buy order, it will usually be filled immediately because there’s a lack of buy orders in the market. But if you want to sell, you’ll need to wait in line because sell orders are already piled up.

Here’s an important tip. If you see a stock at risk of hitting the limit down, never wait until it actually hits the limit to sell, as that will only push the price even lower. The smartest approach is to 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 priority, and the better your chances of getting filled. Once you’ve placed your order, don’t mess with it. Many people see it hasn’t sold and rush to cancel and re-enter orders, which only pushes their order to the back of the queue, making it harder to execute.

If you’re truly locked in a limit down situation, don’t despair completely. Pay attention to the "buy one" orders at the limit down price. If you suddenly see a large volume of buy orders, it’s likely that big players are stepping in to buy. You can follow suit and sell quickly. Also, many limit down stocks tend to see a liquidity release in the last 10 to 15 minutes before the market closes, as some traders try to pick up bargains. That’s often the last chance to sell on that day.

Why do stocks hit the limit down? There are several common reasons. Earnings reports that miss expectations, losses widening, or declining gross profit margins can directly trigger limit downs. Market panic is another factor — during the COVID-19 outbreak, many stocks hit the limit down as investors panicked. Large institutional investors unwinding positions, margin calls, or technical breakdowns breaking below key moving averages like the monthly or quarterly lines are also typical triggers.

So, what should you do when facing a limit down? The first step is to stay calm and avoid emotional, reckless selling. Understand why the stock is falling — is the company really in trouble, or is it just market sentiment dragging it down? If the company is fundamentally sound and the decline is due to short-term factors, it’s likely to rebound later. Holding or making small positions might be an opportunity.

Another approach is not to blindly buy the limit down stock. Instead, consider buying related upstream or downstream companies, or similar stocks. For example, if a leading stock in an industry hits the limit down, other stocks in the same sector often move in tandem. Sometimes, these related stocks offer better trading opportunities.

In the US stock market, the concept of limit up and limit down doesn’t exist. Instead, there are circuit breakers. When the S&P 500 drops more than 7% or 13%, trading pauses for 15 minutes to cool off. If it drops 20% in a day, the market closes for the day. For individual stocks, if they move more than 5% up or down in a short period, trading may be temporarily halted. The purpose of these mechanisms is to prevent excessive volatility and give investors a breather.

In summary, limit down stocks can be bought, but the key is to have a strategy, patience, and good judgment. Blindly chasing after falling stocks is the easiest way to lose money. Rational analysis is the way to go.