Recently, many beginners have been asking about limit-up and limit-down in stocks, so I’ll organize my understanding here. Actually, limit-up and limit-down are common phenomena in the stock market; simply put, they occur when the stock price reaches the maximum allowed increase or decrease.

Taking the Taiwan stock market as an example, the limit-up restriction is that the stock price cannot exceed 10% of the previous day's closing price. If a stock closed at 600 yuan yesterday, today it can only rise to a maximum of 660 yuan. Conversely, limit-down means the price can only fall by 10%, which is 540 yuan. The rules for Hong Kong and U.S. stocks are different; Hong Kong stocks do not have limit-up restrictions, and neither do U.S. stocks—they use circuit breakers instead.

How to determine if a stock is in a limit-up or limit-down state? The most straightforward way is to look at the candlestick chart. If the price is stuck on a straight line and not moving, it’s basically at limit-up or limit-down. On Taiwan stock trading software, limit-up stocks will show a red background, and limit-down stocks will show a green background. Looking at the order book can help understand why—during limit-up, buy orders pile up heavily, and sell orders are almost nonexistent, indicating that demand to buy far exceeds the supply to sell. Conversely, during limit-down, sell orders are overwhelming, and buy orders are scarce.

Many people ask whether they can buy or sell during a limit-up or limit-down. The answer is yes, but there’s a pitfall to watch out for. During limit-up, you can place buy orders, but they may not be executed because there are too many buy orders ahead in line. Selling is easier to execute because many want to sell. During limit-down, buying is easier to fill, but selling may require waiting in line.

When encountering a limit-up or limit-down, the most common mistake is chasing the market or panicking and selling. You need to analyze the underlying reason. For example, if a stock hits limit-down but the company’s fundamentals are solid and it’s just market sentiment fluctuating, holding or making small positions might be a better choice. If it’s a limit-up, check whether there are genuine positive news supporting it and whether the rise can be sustained. If uncertain, it’s safest to wait and see.

A trick is that when a stock hits limit-up, related stocks in its industry chain often also rise. You might consider buying stocks of related companies. For example, if a leading stock hits limit-up, other stocks in the same industry often perform well too.

If you really can’t buy the stock you want, there are other options. You can consider trading related derivatives, such as stock futures or options. However, most derivatives have high entry barriers for beginners. Another option is contracts for difference (CFDs), which offer more flexibility—they allow two-way trading, meaning you can profit from both rising and falling markets, with flexible leverage and relatively low costs.

In summary, limit-up and limit-down are market self-protection mechanisms. Taiwan stocks are limited to 10%, while Hong Kong and U.S. markets use circuit breakers to control volatility. During limit-up, you can place orders normally, but whether they execute depends on market depth. The key is to analyze rationally and not be driven by market emotions.