Recently, many beginners have asked me, "Can I buy stocks that hit the daily limit and are locked?" Actually, this is a very good question because many people panic when they see the limit-up board and have no idea whether they can still operate. So I’ve organized some of my years of experience on this.

First, to be straightforward: hitting the limit-up does not affect trading, and hitting the limit-down also does not affect trading. But the key point is whether your order can be executed; this is what everyone really needs to understand.

Want to buy when a stock hits the limit-up? Sure, but don’t expect it to be filled immediately. Because there are already many people queued up at the limit-up price waiting to buy, your order can only wait in line. However, if you place a sell order, it will usually be executed instantly because there are so many buyers at that moment. Conversely, for limit-down stocks, the same logic applies: if you want to buy, it will be filled immediately; if you want to sell, you need to queue.

When I watch the market, I see that for limit-up stocks, buy orders are full on one side, and sell orders are almost empty, which clearly indicates excess demand. For limit-down stocks, it’s the opposite: sell orders pile up, and buy orders are sparse. In the Taiwan stock market, limit-up is marked with a red background, and limit-down with a green background, so you can distinguish them at a glance.

Regarding whether you can buy when a stock is locked at the limit-up, I want to emphasize a practical tip. If you sense that a stock is about to hit the limit-down, don’t wait until it actually hits the limit-down to try to sell. The smartest approach is to place a sell order during the pre-market auction because the trading rule is “price priority, time priority,” meaning the earlier you place the order, the higher your priority. I’ve seen too many people rush to cancel and re-place orders when they can’t sell, only to end up at the back of the queue, making it even harder to execute. Once you place the order, don’t move it; keep it as is.

Sometimes, limit-down stocks will show a brief liquidity release in the last 10 to 15 minutes before the market closes. This is the last chance to escape that day. Alternatively, you can pay attention to the “Buy 1” order volume at the limit-down price. If a large amount of buy orders suddenly flood in, it’s likely that the big players are stepping in to take over. At this point, you might consider selling along with them, but act quickly.

Can you buy when a stock is locked at the limit-up? Ultimately, it depends on your strategy. Don’t rush to chase the limit-up; first, understand why it’s up. If it’s due to genuine positive news, such as a huge increase in earnings, receiving large orders, or policy incentives (like TSMC getting Apple or NVIDIA’s big orders), there might still be room for further gains. But if it’s just market sentiment speculation or technical breakout, the limit-up often signals distribution.

Conversely, when a stock hits the limit-down, you should also judge rationally. Sometimes it’s just market emotion or short-term factors affecting the stock, and the company itself isn’t fundamentally problematic. It might rebound later. Holding or small-scale accumulation could be the best strategy in such cases. But if there’s a financial report disaster, management scandal, or margin call leading to forced liquidation, then you should cut losses and exit.

A common reason I see for limit-up is that the chips are locked by big institutional players. Foreign investors, trust funds, or major players continuously buy in large amounts, locking the chips tightly in small- and mid-cap stocks. The market has hardly any stocks available for sale, so just a slight pull can lock the limit-up. Retail investors wanting to buy can’t get in. Also, AI concept stocks are hot topics; with server demand surging, they often hit the limit-up. During quarter-end earnings campaigns, trust funds and major players love to aggressively buy IC design stocks to boost performance.

When stocks hit the limit-down, it’s usually due to negative shocks, such as financial fraud, industry downturns, or entering recession phases. Market panic selling makes it very hard to avoid losses. During the COVID-19 outbreak in 2020, many stocks directly hit the limit-down or crashed in the US market, dragging Taiwan’s tech stocks down with them—these are signs of systemic risk.

An interesting comparison is that the US stock market doesn’t have a limit-up or limit-down mechanism. Instead, they use a “circuit breaker” system. If the S&P 500 drops more than 7% or 13%, the entire market pauses for 15 minutes to catch its breath. If it drops to 20% in a day, trading is halted for the day. Individual stocks have short-term halts if they move more than 5% within a brief period. This is quite different from Taiwan’s system, where a 10% limit-up or limit-down causes the stock to freeze at the limit price.

My advice is that when encountering limit-up or limit-down situations, the most important thing is to stay rational. Don’t blindly chase high or sell low. First, understand why the stock is hitting the limit-up or limit-down, then decide whether to enter. If you like a stock but it’s at the limit-up and you can’t buy, consider buying related upstream or downstream companies or similar stocks. For example, when TSMC hits the limit-up, other semiconductor stocks often move together. Or, if the stock is listed in the US, you can use OTC or overseas brokers to buy US stocks, which can be more convenient.