Recently, a friend asked me whether it’s still possible to buy or sell when a stock hits the limit up or limit down. Actually, this is a confusion that many beginners run into. I’ve compiled my stock-trading experience from these years to help everyone get clear on it.

Let’s start with the most basic concept. A limit up is when the stock price rises to the daily ceiling for that day, and a limit down is when it falls to the floor. In Taiwan’s stock market rules, the day’s limit on price movement cannot exceed 10% of the previous day’s closing price. For example, if a stock closed at 600 yesterday, today its highest price can only rise to 660, and its lowest price can only fall to 540.

How do you spot it at a glance? It’s simple. When you open the trading board, if a stock’s price chart turns into a straight line, that’s usually because it’s being locked. Taiwan stocks’ indicators are also very straightforward: limit up is shown with a red background, and limit down is shown with a green background—so there’s really no need to overthink it.

Now, the key question—can you trade when a stock hits the limit up or limit down? The answer is yes; trading is not frozen. But there’s one crucial thing to understand: when a stock is at the limit up, there are far more people trying to buy, so your buy order may need to queue up and won’t necessarily be filled right away; however, if you place a sell order, it’s basically filled immediately, because hardly anyone wants to sell. Conversely, when a stock is at the limit down, many people want to sell, so your sell order has to wait, but buy orders are usually filled right away.

I want to specifically mention how to handle limit down. A common mistake many people make is waiting until the stock truly hits the limit down before they decide to sell, and the result is only that they end up selling at even lower prices. My advice is: once you notice the stock might reach the limit down, you should quickly place your sell order during the call auction, because the trading rule is “price priority, time priority.” The earlier you place your order, the earlier your place in the queue, and the better your chance of getting filled. After you’ve placed the order, don’t cancel it impulsively. Many people see that it hasn’t been filled and rush to cancel and re-post, which instead puts their order at the back of the queue.

If the stock is already locked at the limit down, there are still a few “escape” moments. One is to watch the “Buy 1” order quantity at the limit-down price—if a large number of buy orders suddenly floods in, it may mean the main players are taking over. In that case, you might consider selling along, but you need to move fast because the opportunity is very short-lived. Another timing is the last 10 to 15 minutes before the market close. Liquidity often gets released during this period, and funds enter to pick up bargains. This is usually the day’s final chance to sell.

As for why a stock hits the limit up or limit down, there are actually many reasons. Limit up is often driven by positive news—such as outstanding earnings, winning big orders, or the government rolling out industry policies. Sometimes it’s the market trading on themes; for example, AI concept stocks or biotech stocks. It can also be triggered by technical breakouts, or by the chips being locked up by big players so that retail investors basically can’t get any shares. Limit down is the opposite: earnings blowups, company issues, industry decline, market panic, main players dumping shares, or even technical breakdowns can all lead to it.

Let me also mention this: the U.S. stock market doesn’t have the concept of limit up or limit down; they use a circuit breaker mechanism. When the S&P 500 index falls by more than 7% or 13%, the market rests for 15 minutes. If it falls to 20%, trading is halted directly. For individual stocks, if they rise or fall by more than 5% within 15 seconds, trading can also be temporarily paused for a period of time.

When encountering limit up or limit down, my practical advice is as follows. First, don’t blindly chase price moves. You should first figure out why the stock hit the limit up or limit down, and then decide whether to enter. For instance, if a stock hits the limit down but the company itself has no real problems—it's just being dragged down by market sentiment—then it may rebound later. In that situation, holding or opening a small position can be a smarter move. On the other hand, if you see a stock hit the limit up, don’t rush to chase. First judge whether the positive news can hold up the price; if it can’t, then observe from the sidelines.

The second strategy is to trade related stocks. When a stock hits the limit up because of positive news, its upstream and downstream suppliers or similar companies often move as well. Then you can consider these related stocks. Also, Taiwan stocks like TSMC are listed on U.S. markets; you can consider buying the U.S. versions through a cross-brokerage arrangement or overseas brokers.

Finally, I want to bring up a common technical analysis question—can you buy if the stock breaks below the 5-day moving average? Actually, it depends on the specific situation. If the stock only temporarily pulls back and breaks below the 5-day line, but the fundamentals are still solid, you could consider a small layout or wait for a clearer support level before entering. But if the stock breaks below the 5-day line at the same time as negative news or abnormal trading volume, you need to be more cautious—possibly even consider waiting first. Technical analysis is just an aid; you can’t judge based on a single line. You have to combine fundamentals, volume, and overall market sentiment for a comprehensive analysis.

In short, limit up and limit down are not something to be afraid of. The key is to understand the logic behind them and know when to enter and when to exit—then you can last longer in the stock market.