Recently, a friend asked me whether it's still possible to trade when a stock hits the daily limit up or down. I realize many people are actually not very clear about this issue, especially beginners who tend to panic when a stock is locked at the limit up and can't be sold. Today, let's talk about this common market phenomenon.

First, the conclusion: both limit up and limit down can be traded, but the difficulty of executing trades is completely different.

In the Taiwan stock market, a limit up means the stock price has risen to the 10% upper limit of the previous day's closing price, and a limit down means it has fallen to the lower limit. For example, TSMC, if it closed at 600 NT dollars yesterday, can only go up to 660 NT dollars today, and the lowest is 540 NT dollars. This restriction mechanism is actually designed to prevent wild price swings.

How to tell if a stock is at limit up or limit down? Very simple—look at the trend chart on the trading screen; if it becomes a straight line, you know. In Taiwan stocks, limit up is marked with a red background, limit down with a green background, so you can distinguish at a glance. More importantly, observe the order book—at limit up, buy orders are piled high, and sell orders are almost nonexistent; at limit down, it's the opposite—sell orders are overwhelming, and buy orders are sparse.

Can you buy at the limit up? Of course, but be mentally prepared. If you place a buy order, it may not be filled immediately because many people are already waiting to buy at the limit up price. But if you place a sell order, it will almost be executed instantly because there are many buyers at that moment. So, selling at the limit up is much easier than buying.

The situation is the opposite at limit down. Placing a buy order will be filled immediately because many want to sell. But placing a sell order means waiting in line, which is why many say that a limit-up lock prevents selling—if the stock continues to fall after hitting the limit down, you might not be able to sell at all.

Here's an important trading tip: once you suspect a stock might hit the limit down, don’t wait until it actually does to sell. The best approach is to place a sell order during the pre-market auction. Because the trading rule is "price priority, time priority," the earlier you place your order, the higher your position in the queue, and the greater the chance of execution. After placing the order, don’t keep changing it; many people see it hasn't been filled and rush to cancel and re-enter, ending up at the back of the queue, making it even harder to execute.

If you really encounter a situation where a stock is locked at the limit down and can't be sold, pay attention to the buy-side order volume at the limit down price. If suddenly a large number of buy orders appear, it’s likely that institutional investors are stepping in to buy. At this point, you might consider selling along with them, but act quickly—the opportunity is usually very short-lived. Additionally, in the last 10 to 15 minutes before market close, stocks at the limit down often see a liquidity release, with funds coming in to pick up bargains. This is also the last chance to sell for the day.

Why do stocks hit the limit up or down? Limit up is usually caused by positive news, market enthusiasm for hot topics, technical strength, or large investors locking in their positions. For example, TSMC might hit the limit up after landing a big order from Apple, or AI concept stocks might surge due to booming server demand. Limit down, on the other hand, can be triggered by poor earnings reports, company scandals, market panic, major investors offloading holdings, or technical breakdowns.

Interestingly, the U.S. stock market doesn’t have the concept of limit up or down. They use circuit breakers—if the S&P 500 drops more than 7% or 13%, the market pauses for 15 minutes; individual stocks that move more than 5% in a short period may also be temporarily halted. The design idea is essentially the same—to give the market a cooling-off period.

When encountering limit up or down, the most important thing is to stay rational. Beginners often make the mistake of blindly chasing gains or cutting losses. When a stock hits the limit down, don’t rush to sell in panic; first, clarify whether the company is genuinely in trouble or if it’s just market sentiment dragging it down. If the company has no real issues, the limit down might actually be an opportunity. Similarly, when a stock hits the limit up, don’t rush to buy. Confirm that there is genuine positive news that can sustain the price increase; otherwise, it’s best to wait and see.

Another approach is to trade related stocks. When TSMC hits the limit up due to positive news, other semiconductor stocks usually move in tandem. Or you can directly buy the U.S. stock version of TSMC (TSM), to participate in the same trend. In short, don’t panic if a stock is locked at the limit up or down; the market will always give you opportunities. The key is patience and proper trading strategies.