Recently, I’ve seen a common question that many new investors ask: when a stock hits the limit up or limit down, can you still buy and sell? In fact, it’s a good question, because many people see the stock price chart turn into a straight line and think the market is closed—but that’s not the case.

Let me briefly explain what limit up and limit down are. Taiwan’s stock market regulations state that a single stock’s daily price movement cannot exceed 10% of the previous day’s closing price. For example, if TSMC closed yesterday at 600 NT dollars, today it can only rise as high as 660 and fall as low as 540. When the stock price reaches this upper limit, it’s called limit up; when it drops to the lower limit, it’s called limit down. On the trading board, they’re easy to recognize: limit up is marked with a red background, and limit down is marked with a green background.

The most straightforward way to tell whether a stock is at limit up or limit down is to look at the buy and sell orders. When it’s at limit up, the buy orders are packed with people, while the sell orders are almost empty—this indicates that the number of people who want to buy far exceeds those who want to sell. When it’s at limit down, it’s the opposite: sell orders are full, and buy orders are sparse.

As for whether you can buy or sell, the answer is yes, but it depends on how likely trades are to execute. When a stock is at limit up, if you place a buy order, it doesn’t necessarily execute immediately, because many people are already queued at the limit-up price. But if you place a sell order, it will basically execute instantly, because buyers are rushing to buy. When it’s at limit down, placing a buy order will execute immediately, while placing a sell order means you have to line up.

Here I want to specifically mention a practical tip: about placing limit-down sell orders before the market opens. Many people only think about selling after the stock hits limit down, but by then it’s often already too late. My suggestion is: once you notice that the stock might hit limit down, you should place your sell order as soon as possible during the call auction. This is because the trading rules are “price priority, time priority”—the earlier you place your order, the higher your position in the queue, and the greater your chance of execution. After your order is successfully placed, don’t rush to cancel and re-submit it—that will only put you at the very back of the line. Also, when the stock is at limit down, if you suddenly see a large buy order appearing at a certain buy price level, it may mean a major player is taking over. In that situation, you can consider selling along with them, but you need to move quickly. Another opportunity is during the last 10 to 15 minutes before the close, when liquidity sometimes gets released—funds may come in to buy at a bargain. That can also be the final chance to sell that day.

Limit up is usually caused by positive news, such as earnings surging, receiving big orders, or policy benefits stimulating demand. It can also be driven by market enthusiasm for a popular theme—such as AI-related stocks, biotech stocks, or a year-end accounting-driven trading run. Improved technical performance and capital being locked in can also trigger limit up.

The reasons for limit down are usually the opposite. Negative news, an earnings “disaster,” or company scandals can trigger panic selling. Sometimes it’s a shock to market sentiment—for example, systemic risks like COVID-19 can cause a lot of stocks to hit limit down and stay there. Common causes also include major players dumping positions, margin calls, and technical breakdowns.

Interestingly, the U.S. stock market doesn’t have a limit up/limit down mechanism. Instead, they use a circuit breaker system, also known as automatic trading halts. When the overall market drops by more than 7% or 13%, trading pauses for 15 minutes; if it falls to 20%, the market closes for the day. For individual stocks, if they rise or fall by more than 5% within 15 seconds, trading is also temporarily halted.

When you encounter limit up or limit down, the most important thing is to make rational judgments—don’t blindly chase gains or panic sell. When a stock hits limit down, first figure out whether there’s something wrong with the company itself. If it’s only the market’s sentiment dragging the price down, it may very well rebound later. In that case, holding the position or making small incremental buys is the wise move. And when you see a stock hit limit up, don’t rush to chase it—first confirm whether this positive catalyst can actually support the price and keep pushing higher. If you’re not sure, the safest approach is to watch and wait.

Another trading idea is to trade related stocks. When a stock hits limit up due to positive news, related upstream and downstream suppliers or similar companies often move as well. For example, when TSMC hits limit up, most other semiconductor stocks usually follow. Some Taiwanese stocks are also listed in the U.S.; for example, TSMC has the ticker TSM. If you want to invest, you can place orders through a cross-border proxy service or an overseas broker.