Can you still trade stocks that hit the daily limit? Understand the changes in price limits and practical strategies in one go

The most captivating phenomenon in the stock market for investors is none other than the “limit-up” and “limit-down” — these indicate that market sentiment has reached an extreme state. Many beginners see a limit-up stock and want to rush in, while seeing a limit-down stock and scramble to escape, but in reality, these extreme price limits often hide investment opportunities and traps. Can limit-up and limit-down stocks be traded? What is the market logic behind them?

Understanding the Essence of Limit-up and Limit-down

Limit-up refers to a stock reaching the maximum allowable price increase within a trading day, with the price frozen at the highest level and unable to go higher. Conversely, Limit-down means the stock has fallen to the daily lower limit, locked at the lowest price.

Taking Taiwan’s stock market as an example, regulators stipulate that individual stocks’ daily price movements cannot exceed 10% of the previous closing price. Suppose a stock closed yesterday at 100 NT dollars; today, the maximum is 110 NT dollars (limit-up), and the minimum is 90 NT dollars (limit-down).

How to Recognize Limit-up and Limit-down Stocks at a Glance?

It’s very easy on the trading screen: when you see a stock’s candlestick turn into a straight line and remain completely still, it indicates it is locked. The Taiwan stock market marks limit-up stocks with a red background and limit-down stocks with a green background.

You can also judge by looking at the order book: limit-up stocks are characterized by a mountain of buy orders, with almost no sell orders — because demand to buy far exceeds supply to sell. Conversely, limit-down stocks have an abundance of sell orders and sparse buy orders.

Can Limit-up and Limit-down Stocks Still Be Bought and Sold? What Is the Truth?

The answer is yes. Stocks can still be traded when they hit limit-up or limit-down, but the transaction conditions are completely different.

When encountering a limit-up stock:

• Want to buy: You can place an order, but since many others are already queued to buy at the limit-up price, your order is unlikely to be filled immediately.
• Want to sell: Usually, it will be executed quickly because there are many buyers at that moment.

When encountering a limit-down stock:

• Want to buy: It will be filled very quickly because there are many sellers trying to offload.
• Want to sell: You may need to queue, as sell orders are piled up at the limit-down price.

In simple terms, in extreme market conditions, your chance of successful transaction depends on whether your trading direction aligns with the market’s mainstream sentiment.

What Factors Trigger the Appearance of Limit-up Stocks?

Positive news releases are the most direct drivers. When listed companies suddenly announce impressive financial reports, a surge in EPS, or secure large orders, market funds will rush in immediately. For example, if TSMC receives a major customer order, related stocks are often pushed directly to the limit-up.

Hot topic speculation also easily drives a wave of limit-ups. AI concept stocks surge due to increased application demand, biotech stocks are frequent targets of hype, and during quarter-end earnings season, fund managers and major players aggressively push small and medium electronic stocks to boost performance.

Technical turning points should not be overlooked. When stock prices break through long-term consolidation ranges with high volume, or when high short-selling balances trigger short squeeze conditions, these attract aggressive buying.

Highly concentrated chips are also a catalyst. When foreign investors and funds continuously buy in large quantities, or when major players lock in small-cap stocks tightly, the market lacks supply of chips, and a small spark can easily trigger a limit-up.

The Hidden Risks Behind Limit-down Stocks

Negative news shocks are the most common triggers for limit-downs. Earnings warnings (losses widening, gross profit margin falling), company scandals (financial fraud, executive involvement), industry recession, etc., can instantly trigger panic selling.

Systemic market risks are also culprits. For example, during the COVID-19 outbreak in 2020, many stocks directly hit the limit-down; or during a US stock crash, TSMC ADRs led the decline, dragging Taiwan’s tech stocks down significantly.

Main players offloading and margin calls are the most feared scenarios for retail investors. Major players first push prices higher, then dump shares to trap retail investors; when margin calls are triggered, selling pressure surges, and many investors are caught off guard trying to escape.

Technical breakdowns can trigger chain reactions. Falling below key supports like the monthly or quarterly moving averages, or suddenly exploding with long black candlesticks (a sign of major players unloading), will cause stop-loss selling, leading to limit-down stocks.

Market Volatility Control Mechanisms Globally

The US stock market does not have limit-up or limit-down restrictions but employs circuit breakers to prevent out-of-control trading. This automatic halt system pauses trading when price movements exceed certain thresholds, giving the market a breather.

Market circuit breaker: When the S&P 500 drops more than 7% or 13%, the entire US stock market pauses for 15 minutes; if the decline reaches 20%, trading is halted for the day.

Single-stock circuit breaker: When a single stock’s price surges or plunges more than 5% within a short period (e.g., 15 seconds), trading for that stock is temporarily suspended. Different stocks may have different standards.

How Should Investors Deal with Limit-up and Limit-down Stocks?

First tip: Stay calm, analyze carefully, avoid blindly chasing or panicking

The biggest mistake beginners make is rushing to buy when seeing a limit-up stock or fleeing when seeing a limit-down stock. The correct approach is to first understand why the stock is limit-up or limit-down.

If a stock hits the limit-down but the company’s fundamentals are sound, and it’s just market sentiment dragging it down, the chance of a rebound is high — at this point, you should hold your position or consider small contrarian entries.

When seeing a limit-up stock, don’t rush to chase. Confirm whether there are significant positive catalysts supporting the continued rise. If unsure, waiting and observing is the best strategy.

Second tip: Shift focus to related stocks or overseas markets

When a hot stock hits the limit-up due to major news, consider buying upstream or downstream suppliers or peers. For example, if TSMC hits the limit-up, other semiconductor suppliers often move in tandem.

Additionally, many Taiwanese listed companies are also traded on US markets. For instance, TSMC(TSM) can be bought on US exchanges via foreign brokers or custodial accounts, sometimes offering more flexibility than watching the limit-up stocks in Taiwan.

Third tip: Establish your own trading discipline

The greatest test during extreme market conditions is mental resilience. Set clear entry and exit points, stop-loss levels, and stick to your discipline—avoid chasing after rises or panic selling. Long-term profitability in the stock market depends on rational judgment and patience. Limit-up stocks may attract attention, but real opportunities often come from rational analysis and waiting patiently.