Recently, I’ve noticed that many beginners are asking about stocks hitting the daily limit down. In fact, this is a confusion that many people encounter after they enter the stock market. Today, let’s talk about this topic.

First, you need to understand what limit up and limit down mean. Simply put, a limit up is when the stock price rises to the highest allowed level for the day, and a limit down is when it falls to the lowest allowed level. Taking Taiwan’s stock market as an example, the daily limit for an individual stock’s price movement cannot exceed 10% of the previous day’s closing price. That means if a certain stock closed at 600 yuan yesterday, today its highest possible price is 660 yuan and its lowest possible price is 540 yuan.

How can you tell whether a stock is at its limit up or limit down? The most straightforward way is to look at the order book. If the stock price chart turns into a straight line with absolutely no movement, then in 8 or 9 times out of 10 it’s basically at the limit up or limit down. On the Taiwan stock market, stocks at the limit up are marked with a red background, while those at the limit down are marked with a green background, making it easy to tell at a glance. Usually during a limit up, buy orders pile up heavily and sell orders are almost empty, because there are far more people trying to buy than people trying to sell. Conversely, during a limit down, sell orders are full and buy orders are almost nonexistent.

So here’s the key question: can you buy a stock when it’s at the limit down? The answer is yes. Limit up and limit down don’t affect trading, so you can place orders normally. What you need to watch out for is how difficult it is to actually get filled. During a limit up, if you place a buy order, it may not be filled right away because there are already many orders lined up at the limit-up price waiting to buy. But if you place a sell order, it’s much more likely to be filled immediately because buy demand is strong. During a limit down, the situation is reversed: buy orders are more likely to get filled quickly, but sell orders may have to wait in line.

Here’s a practical tip. If a stock hits the limit down, the probability that it will keep falling over the next few trading days is usually high. So instead of waiting until it hits the limit down to sell, when you notice the stock might hit the limit down, you can place your sell order quickly during the call auction session. Because the trading rules are “price priority, time priority,” the earlier you place an order, the earlier your rank in the queue, and the better your chances of getting filled. Once your order is successfully placed, it’s best not to touch it. Many people don’t get to sell and end up panicking, canceling and re-submitting, which can push their orders to the back of the queue—making it harder to get filled. If you see a sudden large number of buy orders appear at the limit-down price, it may be that major players are stepping in to take over. At that point, you can consider selling along with it, but you need to move fast. Also, pay attention to the final 10 to 15 minutes before market close—sometimes there’s a short burst of liquidity released, which can be a good time to sell.

The reasons a stock hits the limit up are usually several common ones. A company suddenly releases solid financial results or receives a large order—like when TSMC receives major orders from Apple or NVIDIA—it’s easy to hit a limit up. Government policy incentives can also drive stocks in related industries to hit the limit up. Market funds like to chase hot themes; for example, AI concept stocks and biotech stocks are the kinds that can be easily hyped. Strong technical performance and when the float (shareholding/positions) is locked down by big players can also trigger limit ups.

The reasons for a limit down are the opposite. Bad news—like earnings misses, corporate scandals, or industry downturns—will trigger panic selling pressure. When market sentiment is high, stocks can also hit the limit down; for example, during the COVID-19 outbreak in 2020 or a crash in U.S. stocks, Taiwan’s technology stocks were dragged down too and hit limit down. Common triggers for limit down include major players dumping positions, margin calls, and technical breakdowns.

It’s worth mentioning that the U.S. stock market does not have limit up/limit down restrictions, but it does have a circuit breaker mechanism. When the S&P 500 index drops by more than 7% or 13%, trading across the whole market is temporarily paused for 15 minutes to let things cool off. If it falls to 20%, trading is suspended for the day. For individual stocks, the circuit breaker is triggered when their price rises or falls by more than 5% in a short period, pausing trading for a while.

Finally, let’s talk about what to do when you encounter a limit up or limit down. The most important thing is to stay rational—don’t blindly chase after highs or sell out at lows. First, figure out why the stock hit the limit up or limit down, and then decide whether to enter. If it’s at the limit down but the company itself has no problems and it’s only being dragged down by market sentiment, then it will likely rebound later. In that case, you can consider holding it or making a small initial position. When you see a stock hit the limit up, don’t rush to chase it—you should first confirm whether there are truly strong positives supporting the move.

Another strategy is to trade related stocks. When a stock hits the limit up because of good news, you can consider buying the upstream and downstream companies related to it or other similar stocks. For example, when TSMC hits the limit up, other semiconductor stocks usually move along with it. Some Taiwanese stocks are also listed in the U.S. For instance, TSMC can be bought in the U.S.; placing orders through overseas trading platforms or via American brokers is usually more convenient, such as through cross-listing trading arrangements.