Can stocks really be traded when they hit the daily limit up or down? From limit-down stocks to limit-up boards, an investor's essential guide to responding

In stock market investing, “limit up” and “limit down” are two phenomena that are most likely to trigger investor emotional fluctuations. Once a stock hits these extreme price limits, many people become panicked, thinking about rushing to buy or sell. But in reality, stocks can still be traded during limit up or limit down periods; just some nuances need to be understood. This article will give you a comprehensive understanding of the essence of limit up and limit down, and how to make smart decisions in these special market conditions.

First, Understand: What Are Limit Up and Limit Down?

Limit up refers to a stock’s price reaching the maximum allowable increase set by regulatory authorities for the day, causing the price to be frozen at that level and unable to rise further. For example, in Taiwan’s stock market, the daily price fluctuation limit for listed and OTC stocks is ±10% of the previous day’s closing price. If TSMC closed at 600 NT dollars yesterday, the maximum today can only rise to 660 NT dollars before hitting the limit up.

Limit down is the opposite phenomenon, where the stock’s price drops to the lowest limit for the day and cannot go lower. Using TSMC as an example again, the lowest it can fall to is 540 NT dollars.

Both limit up and limit down stocks indicate extreme buy-sell imbalance in the market—limit up is driven by frantic buying, while limit down is driven by overwhelming selling.

Recognize Limit Up or Limit Down at a Glance: From the Market Surface

On Taiwan stock trading software, identifying these two situations is quite simple. Limit up stocks are marked with a red background, and the stock price is frozen as a straight line. At this point, you’ll see buy orders filling the order book, but sell orders are almost empty—because demand far exceeds supply.

Limit down stocks are usually shown with a green background, with the price frozen as a straight line. The situation is completely opposite: sell orders are queued up waiting to be filled, while buy orders are sparse. This explains why limit down stocks often display such abnormal market scenes.

When you see a stock’s price chart suddenly become a horizontal line, you can be sure it has hit the limit up or limit down price.

Limit Up: Buying and Selling Are Possible, But Success Rates Differ Greatly

Many novice investors mistakenly think that stocks cannot be traded during limit up. This is a misconception. You can definitely place buy or sell orders during a limit up period, but the chances of execution vary greatly.

Want to place a buy order? The system will allow you to set a buy order at the limit up price, but many orders are already queued ahead. Unless those earlier buy orders are gradually filled, your order might have to wait a long time before it gets executed.

Want to place a sell order? Usually, it will be executed immediately because buy demand is very high at this time. As long as someone is willing to sell at the limit up price, a buyer will take the order instantly.

Summary: Selling during limit up is easy; buying is difficult.

The Logic of Limit Down Stocks Is Completely Reversed

Limit down stocks face the opposite situation. Placing a buy order will be filled immediately because there are many sellers in the market. Your buy order will be quickly absorbed. But placing a sell order may require waiting in line, as sell orders are piled up.

For investors optimistic about the long-term prospects of limit down stocks, this can be an excellent accumulation opportunity. But if you want to quickly exit the position, be prepared for waiting in line for execution.

Summary: Buying during limit down is easy; selling is difficult.

Practical Strategies for Investors When Encountering Limit Up or Limit Down

First Tip: Analyze Rationally First, Avoid Blind Following

The most common mistake among beginners is chasing after limit up stocks or panicking and selling during limit down. But smart investors first understand the reasons behind these phenomena.

A limit down drop doesn’t necessarily mean the company has major problems. Sometimes, it’s just short-term market sentiment or specific news shocks. The company’s fundamentals may still be healthy. In such cases, holding your current position or adding on dips can be the best strategy.

Similarly, when a stock hits limit up, stay calm. Ask yourself: Is this positive news enough to support continued price increases? Are the main players genuinely optimistic, or is it just short-term speculation? If you’re unsure, waiting on the sidelines is always the safest choice.

Second Tip: Shift Focus to Related Stocks or International Markets

When a leading stock hits limit up due to major positive news, related upstream or downstream companies, or similar stocks, often move in tandem. For example, when TSMC hits limit up, other semiconductor equipment suppliers and foundries may also benefit. Instead of blindly chasing TSMC, consider buying other stocks in the same industry chain.

Additionally, Taiwan’s large companies are also listed abroad. TSMC’s US stock ticker is TSM. You can open accounts via cross-trading or overseas brokers to trade in the US stock market. This way, you can participate in the same asset’s market movements and avoid the difficulty of buying at limit up.

Differences Between Limit Up and Limit Down in Different Markets: Taiwan vs US

Taiwan stocks have strict limit up/down restrictions, but US stocks have no such limits. Instead, they have a set of automatic protections—circuit breakers.

The circuit breaker mechanism aims to prevent market crashes or surges from spiraling out of control. When stock prices fluctuate too wildly, trading is automatically halted to give the market time to cool down.

Market Circuit Breaks: When the S&P 500 drops more than 7% in a trading day, trading is paused for 15 minutes; if the decline reaches 13%, another 15-minute halt; and if it drops over 20%, the market closes for the day.

Single Stock Circuit Breaks: Any individual US stock that moves more than 5% within 15 seconds will be temporarily halted. Different stock types may have varying standards.

This design allows US investors to trade freely at any time, but the market volatility can be more intense than in Taiwan.

Common Causes Triggering Limit Up and Limit Down

When do stocks hit limit up?

1. Positive news-driven — Earnings significantly exceeding expectations, securing major orders (like TSMC winning Apple or NVIDIA orders), or government policies supporting green energy or electric vehicles, often trigger limit ups.

2. Popular market themes — AI concept stocks surge due to exploding server demand; biotech stocks are frequent visitors. At quarter-end, funds and main players often push up small to mid-cap electronic stocks to boost performance, easily hitting limit up with a little spark.

3. Technical strength — Price breaking out of long-term consolidation, volume surges, or short selling covering (short squeeze) can attract chasing buyers, locking the limit up easily.

4. Major players locking chips — Foreign institutional investors, funds, or main players continuously buying large amounts, or tightly locking small and medium stocks, leaving no available shares for sale. Any slight push can lock the stock at limit up.

When do stocks hit limit down?

1. Negative news impact — Earnings losses widen, gross margin declines, financial fraud, executive scandals, or industry entering recession, all can cause limit down.

2. Systemic market panic — During COVID-19 in 2020, many stocks hit limit down; US market crashes also drag down TSMC ADRs, pulling down Taiwan tech stocks.

3. Main players offloading and margin calls — After main players hype stocks and then sell off to trap retail investors; margin calls can trigger forced liquidations, like the shipping stock crash in 2021, making retail investors unable to escape.

4. Technical breakdown — Falling below key support levels like the monthly or quarterly moving averages, or sudden large-volume black candles, often signal main players offloading, leading to limit down.

Summary of Decision-Making When Facing Limit Up or Limit Down Stocks

When the market shows limit up or limit down phenomena, the most important thing is to stay rational. Don’t be swayed by market emotions, and avoid making hasty decisions just because you can’t buy or sell easily.

For limit down stocks, if fundamentals haven’t changed, it might be an opportunity to accumulate at a low price. For limit up stocks, unless there is continuous positive support, it’s wiser to wait and observe. Use the characteristics of both the Taiwan market and international markets, diversify your portfolio, and maintain an advantage amid market volatility.