Can you still buy when the limit-down is locked? The truth about extreme stock market volatility and a guide to coping

When a stock hits the limit down or limit up, can you really execute the trade?

Many retail investors have the same question when a favorite stock hits the limit down: can I still place an order at this time? The answer is yes, but whether it can be filled is another matter altogether.

At the limit down, investors wanting to sell have already queued up, placing orders and waiting for transactions. If you place a buy order now, it will be immediately matched because the sell orders are piled up. But if you want to sell, you have to wait in line, making it hard to offload quickly.

Conversely, the situation at the limit up is different: buy orders need to queue, while sell orders are filled instantly. This is a one-sided market phenomenon—either buying or selling pressure completely dominates the other side.

What is the essence of limit up and limit down?

Limit up means the stock price has already risen to the daily ceiling, unable to push higher. Limit down is the opposite: the stock price has fallen to the daily floor, unable to drop further.

For example, in Taiwan’s stock market, regulators restrict the daily price change of listed and OTC stocks to no more than 10% of the previous trading day’s closing price. Suppose TSMC closed at NT$600 yesterday; today, the maximum rise is NT$660, and the minimum fall is NT$540.

How to quickly identify limit up or limit down stocks?

The display on the trading screen is very intuitive—limit up stocks are shown with a red background, limit down stocks with a green background. More importantly, these stocks’ price charts will turn into a straight line, with no fluctuations at all, which is the most obvious visual cue.

You can also observe the order book. At limit up, buy orders are full of people, while sell orders are sparse; at limit down, the opposite—sell orders are piled up, and buy orders are almost nonexistent.

What causes a stock to hit the limit up?

First category: Major positive news

Earnings reports skyrocketing, EPS surging, securing large orders—these can trigger a limit up. When TSMC receives huge orders from Apple or NVIDIA, its stock often hits the limit up directly. Government policy benefits can also quickly drive stocks higher; for example, green energy subsidies or electric vehicle industry support policies can cause related stocks to be wildly surged by capital.

Second category: Market sentiment and themes

AI concept stocks can skyrocket due to soaring server demand, biotech stocks are frequent hot topics. During quarterly closing rallies, fund managers and major players love to aggressively push small- and mid-cap electronic stocks like IC design to boost performance, and even minor news can send them straight to the limit up.

Third category: Technical strength

A stock breaking out of long-term consolidation, surging with high volume, or a high short interest leading to a short squeeze can attract chasing buyers, ultimately locking the stock at the limit up.

Fourth category: Major institutional control

When foreign investors and fund managers continuously buy heavily, or when major players tightly lock in the chips of small- and mid-cap stocks, the market simply doesn’t have enough shares available. Any attempt to buy pushes the stock directly to the limit up. Retail investors wanting to buy often can’t get in.

What causes a stock to hit the limit down?

First category: Negative news shocks

Earnings disappointments are common triggers—losses widening, gross margin declining, financial fraud, executive scandals, etc. Market panic selling makes it hard to avoid hitting the limit down. When an entire industry declines, related stocks are no exception.

Second category: Systemic risk

Systemic shocks like the COVID-19 pandemic in 2020 cause many stocks to hit the limit down directly. A crash in the US markets can also transmit over; when TSMC’s ADR plunges, Taiwanese tech stocks are also dragged down to the limit down.

Third category: Major players offloading and margin calls

This is the most feared scenario for retail investors. Major players first push prices higher for speculation, then sell off at the top to trap retail investors. Even worse is a margin call—like the shipping stocks crash in 2021, where falling prices triggered margin calls, leading to a surge in selling pressure, and many retail investors couldn’t escape.

Fourth category: Technical breakdown

Breaking below key support levels like the monthly or quarterly moving averages triggers stop-loss selling, or a sudden surge in volume with a black candle, which may signal major players offloading. When stop-loss selling surges, stocks tend to plunge to the limit down.

How do the volatility control mechanisms differ between Taiwan stocks and US stocks?

Taiwan stocks have a limit up/down system, restricting individual stock movements within 10%. But US stocks have no such limit; instead, they have circuit breaker mechanisms.

Circuit breakers are automatic trading halt systems—when stock prices fluctuate too violently, trading is temporarily suspended to cool the market. US circuit breakers are divided into two types:

Market-wide circuit breaker: If the S&P 500 drops more than 7%, the market pauses for 15 minutes; if it drops over 13%, another 15-minute pause; if it hits 20%, trading is halted for the day.

Single stock circuit breaker: If a stock’s price moves more than 5% within a short period (e.g., 15 seconds), trading on that stock is temporarily halted. Different stocks have different thresholds.

Practical strategies for dealing with limit up and limit down

First: Rational analysis, avoid blindly following the crowd

The most common mistake for beginners is chasing high and selling low. Panic selling at limit down, frantic buying at limit up. But smart investors should first understand why a stock hits the limit up or down.

Suppose a stock hits the limit down, but the company’s fundamentals are normal, only dragged down by overall market sentiment or short-term factors. It is likely to rebound later. In such cases, the strategy should be to hold steady or build a small, phased position.

Similarly, when a stock hits the limit up, don’t rush to chase. First, verify if there are genuine major positive catalysts, and whether these can sustain the upward momentum. If the positive news is limited or unlikely to last, waiting and observing is the best approach.

Second: Shift focus to related stocks and US alternatives

When a stock hits the limit up due to positive news, consider buying related upstream or downstream companies in the industry chain, or similar stocks. For example, when TSMC hits the limit up, other semiconductor stocks often follow suit.

Additionally, many Taiwanese listed companies are also traded on US exchanges. TSMC can be bought on the US stock market under the ticker TSM. If local stocks are difficult to execute, using a foreign broker or overseas trading platform to buy US stocks might be a better alternative.

Summary

Both limit up and limit down allow order placement, but the likelihood of execution differs. Limit up sells are easier to fill, and limit up buys are easier to execute. The key is understanding the underlying market forces—one-sided buying or selling pressure creates these extreme conditions.

Investors should make decisions based on understanding the reasons behind these moves, rather than being driven solely by market sentiment. Sometimes, the best approach is to wait patiently.