Can you still buy when stocks hit the daily limit and are locked? Understand the limit-up and limit-down mechanisms, and master the strategies for investment response.

The phenomenon in the stock market that investors love and hate the most is when stock prices are suddenly “frozen”—this is known as the limit-up and limit-down. Many beginners see a stock hit the limit-up and want to chase in, while others see a limit-down and rush to sell, often getting trapped. So, when stocks hit extreme price limits, can we still trade? What is the mechanism behind it?

What are limit-up and limit-down? Understand with a table

Limit-up refers to the stock price reaching the maximum allowable increase set by the exchange within a day, locking the price and preventing further rise. Limit-down is the opposite, where the stock price hits the minimum limit and is frozen.

Taking Taiwan’s stock market as an example, the daily price change limit is 10% of the previous day’s closing price. If a stock closed at 1000 TWD yesterday, today it can only rise to 1100 TWD at most, and cannot go below 900 TWD. Once these boundaries are reached, the price chart becomes a horizontal line. On trading software, limit-up stocks are usually marked in red, and limit-down stocks in green.

Can trading still occur when stocks hit limit-up or limit-down?

Direct answer: Yes, but the difficulty of executing trades varies.

Buying and selling when a stock hits the limit-up

When a stock hits the limit-up, buy orders far outnumber sell orders. If you place a buy order at this time, you’ll be queued, as many buy orders are stuck at the limit-up price. But if you place a sell order, since there are very few sellers, it will almost immediately be executed.

This means that under limit-up conditions, selling is easy but buying is difficult—investors wanting to enter the market will find it hard to buy the desired quantity.

Buying and selling when a stock hits the limit-down

The situation is completely opposite at limit-down. Sellers flood in, while buyers are few. If you place a buy order, because many want to sell, the transaction will be very quick. Conversely, placing a sell order means waiting in line, as the limit-down price level is already filled with sell orders.

In a limit-down scenario, buying is easy but selling is difficult—investors eager to cut losses will find it hard to sell.

Why do stocks trigger limit-up and limit-down?

Common reasons for limit-up

1. Positive news catalysts: Companies releasing impressive financial reports (revenue surge, EPS exceeding expectations), signing major contracts, or government policies favoring the industry (such as green energy subsidies, EV support policies) can trigger investor rushes.

2. Thematic hype: AI concept stocks soaring due to demand explosion, seasonal biotech stock rallies, fund managers pushing up small and mid-cap electronics stocks at quarter-end—these are common drivers of limit-up.

3. Technical breakthroughs attracting buying: Price breaking out of long-term consolidation zones, high short interest leading to short squeezes, all attract chasing capital.

4. High concentration of chips: When foreign investors, funds, or major players keep buying heavily, or when large shareholders lock in their holdings tightly, circulating shares decrease, making it easier to push prices to the limit-up.

Common reasons for limit-down

1. Negative news impact: Disappointing earnings reports (widening losses, declining gross margins), scandals (financial fraud, executive involvement), industry downturns—these can trigger panic selling.

2. Systemic risks spreading: Like during the COVID-19 outbreak in 2020, many stocks hit the limit-down; or the US stock market crash dragging down Taiwanese tech stocks to limit-down.

3. Major shareholders offloading: After hype and price rise, they reverse and dump shares, catching retail investors off guard. Margin calls can also cause limit-down, e.g., during the 2021 shipping stock crash, forced liquidations triggered a sell-off.

4. Technical breakdowns: Falling below key support levels like the monthly or quarterly moving averages, or sudden high-volume black candles (signaling distribution), can lead to limit-down as stop-loss selling floods in.

The US has circuit breakers but no limit-up/limit-down—what is the mechanism?

Taiwan’s stock market uses price change limits to control volatility. The US, however, employs a completely different approach—circuit breakers (automatic trading halts).

When stock prices fluctuate too violently, the system automatically pauses trading for a period to calm market sentiment.

US Major Index Circuit Breaker Standards:

• S&P 500 drops over 7%: trading halts for 15 minutes
• Drop over 13%: another 15-minute halt
• Drop reaches 20%: market closes for the day

US Single Stock Circuit Breaker Standards: If a single stock’s price moves more than 5% within about 15 seconds, trading is halted temporarily. The exact duration depends on the stock category.

How should investors operate when facing limit-up or limit-down?

Step 1: Assess the underlying reason, avoid blind chasing

When encountering limit-up or limit-down, do not rush to buy high or sell low. First, clarify why such extreme price movements occur.

For example, if a stock hits the limit-down but the company’s fundamentals are sound, and the decline is due to short-term market sentiment, there may be a good rebound opportunity. In such cases, holding or adding a small position is advisable, rather than cutting losses immediately.

Conversely, when a stock hits the limit-up, stay calm. Evaluate whether the positive news is genuine and sustainable enough to support further gains. If uncertain, the smartest move is to wait and see.

Step 2: Related stocks or overseas versions

When a leading stock surges on positive news, related stocks in the same industry often follow, though with smaller gains and better liquidity. For example, if TSMC hits the limit-up, other semiconductor equipment suppliers or wafer foundries tend to rise in tandem.

Additionally, many Taiwanese listed companies are also traded on US exchanges. For instance, TSMC(TSM) can be directly traded in the US. Using cross-border brokerages or overseas brokers, investors can bypass Taiwan’s limit-up/limit-down restrictions and enjoy 24-hour global trading.

Step 3: Build risk management awareness

Whether it’s limit-up or limit-down, both indicate extreme market sentiment. Investors should:

• Set clear profit-taking and stop-loss points, avoiding emotional reactions to extreme moves
• Diversify investments to prevent over-concentration
• Regularly review the reasons for holding stocks, and adjust promptly if fundamentals change

Can you buy during a limit-up lock? Yes, but patience and rationality are required. Can you sell during a limit-down crash? Yes, but only if you determine it’s truly necessary to exit. Extreme market conditions often contain both opportunities and risks; the key lies in your judgment and discipline.