Can you still trade when the stock price hits the daily limit? Understanding the limits of stock market volatility and how to respond

The Truth About Limit-Up Locking and Limit-Downs: Extreme Market Reactions

In stock trading, “limit-up” and “limit-down” are two extreme market phenomena, representing the highest degree of imbalance between buyers and sellers. When a stock price hits the daily limit-up cap, the price becomes locked at that level and cannot break through upward—this is called limit-up lock. Conversely, when the price hits the lower limit, it is called a “limit-down.”

Taking Taiwan’s stock market as an example, the exchange stipulates that individual stocks’ daily price movement cannot exceed 10% of the previous trading day’s closing price. For instance, if TSMC closed at NT$600 yesterday, today’s upper limit is NT$660, and the lower limit is NT$540. This 10% restriction sets the ceiling and floor for stock price movements.

Visual Clues at a Glance: The Characteristics of Limit-Up and Limit-Down

Features of the limit-up scene: The price chart will show a horizontal line, usually marked with a red background on Taiwan stock software. At this point, buy orders are piled high on the order book, while sell orders are nearly absent—indicating that demand far exceeds supply, locking the stock at the limit-up price.

Features of the limit-down scene: Similarly, it appears as a straight line, but with a green background. Here, the situation is reversed: sell orders fill the entire order book, while buy orders are sparse, reflecting intense selling pressure.

Can You Still Buy and Sell When a Stock Is Limit-locked? Understanding the Real Trading Rules

Trading during a limit-up: Limit-up does not prohibit trading; you can still place orders normally. However, the execution results vary greatly—to buy, you need to queue up because buy orders are already lined up; to sell, orders are executed almost immediately because buy demand is extremely high.

Trading during a limit-down: Similarly, trading is allowed, but in the opposite direction. Buy orders will be quickly filled (many sellers), while sell orders require patience (many eager to sell).

What Drives Stock Prices Toward Limit-Up Lock or Limit-Down?

Common Drivers of Stock Limit-Up

1. Major Positive News Earnings exceeding expectations, quarterly profit surges, securing key large orders (e.g., TSMC winning Apple or NVIDIA orders), can trigger limit-up. Policy-driven positives are equally powerful—when the government promotes green energy subsidies or electric vehicle support policies, related stocks often hit limit-up.

2. Market Capital Chasing Hot Topics AI concept stocks surge to limit-up due to increased server demand, biotech stocks are frequent favorites. During quarter-end performance boosting periods, major funds often focus on small- and mid-cap electronics stocks to boost performance, easily triggering limit-ups.

3. Technical Breakouts and Capital Flows When stock prices break through long-term consolidation zones with high trading volume, or when high short interest triggers short squeeze scenarios, buying momentum surges, pushing prices to limit-up lock. When large institutional, foreign, and trust fund investors continuously buy in large volumes, circulating shares decrease sharply, and even a small spark can ignite a limit-up.

Common Causes of Limit-Downs

1. Negative News Impact Disappointing earnings reports (losses widening, gross margin decline), scandals (financial fraud, executive involvement), or industry downturns can cause a flood of selling.

2. Market Panic Systemic risks (like the 2020 pandemic crisis) or chain reactions in international markets (US stock market crashes dragging down Taiwanese tech stocks) can trigger widespread sell-offs.

3. Major Players Offloading and Margin Calls Dumping after hype, trapping retail investors, or margin calls forcing forced selling can instantly cause limit-downs. The 2021 shipping stock crash is a classic example—stock prices fell and triggered margin calls, causing explosive selling pressure.

4. Technical Breakdown Breaking below key support levels like the monthly or quarterly moving averages, or large black candlesticks with high volume, are signals of stop-loss selling, easily causing limit-downs.

Different Market Mechanisms for Volatility Control

Taiwan stocks implement limit-up and limit-down restrictions, whereas the US market employs a completely different strategy—circuit breakers (automatic trading halts).

When the S&P 500 drops 7% intraday, trading pauses for 15 minutes; at a 13% decline, another 15-minute halt; if the decline reaches 20%, the market closes for the day. On individual stocks, if a stock’s price moves more than 5% within 15 seconds, it will automatically halt trading for a period.

Facing Limit-Up Lock and Limit-Downs: Investor Strategies

Principle One: Rational Analysis to Overcome the Impulse to Chase Gains or Cut Losses

Beginners often make the mistake of blindly chasing high or cutting low. The correct approach is to first understand why limit-up or limit-down occurs.

If a stock hits the limit-down but the company’s fundamentals haven’t worsened—it’s just market sentiment or short-term negative news—there’s a good chance it will rebound later. At this point, consider holding or small-scale positioning.

If you see a limit-up, don’t rush to follow blindly. First, verify whether the positive news is genuine and sufficient to sustain further gains. If doubts remain, cautious waiting is the best strategy.

Principle Two: Shift to Related Stocks and Cross-Market Trading

When a stock hits limit-up due to major positive news, consider buying its upstream or downstream suppliers or industry peers. For example, when TSMC hits limit-up, other semiconductor stocks often follow suit.

Additionally, many Taiwanese companies are listed in the US (e.g., TSMC ADR code TSM), allowing flexible trading via foreign brokers or proxy trading, helping to avoid the restrictions of limit-up lock on a single stock and broadening investment options.

Starting your trading journey only takes three steps:

1. Register — Fill in your information and submit your application
2. Deposit — Quickly fund your account through various methods
3. Trade — Discover opportunities and place orders immediately