Can you sell at the daily limit? Secrets to buying and selling during extreme stock market conditions

Stock price limit-up and limit-down phenomena in the stock market often make investors excited and confused at the same time. The most common question is: “Can I sell when the stock hits the limit-up?” The answer is actually simpler than you think. Today, let’s delve into this core issue to help you make smarter decisions during extreme market volatility.

What are Limit-Up and Limit-Down? Why Do Stock Prices “Lock” in Place?

Limit-up refers to a stock’s price rising to the maximum allowed for the day, preventing further upward movement. Limit-down is the opposite, where the stock drops to the daily minimum limit, preventing further decline.

For example, in Taiwan’s stock market, regulations specify that the daily price change limit for listed and OTC stocks is no more than 10% of the previous day’s closing price. If TSMC closed at NT$600 yesterday, the limit-up price today is NT$660, and the limit-down is NT$540. Once the stock hits these limits, the price is “locked” at that level, and trades can only occur at that fixed price.

Visual Identification: How to Quickly Tell if a Stock is Limit-Up or Limit-Down?

On Taiwanese trading software, limit-up and limit-down are very easy to identify — the price chart becomes a straight horizontal line, showing no fluctuation. On the trading screen, limit-up stocks are marked with a red background, and limit-down stocks with a green background, making it easy to distinguish at a glance.

From the order book, you can see clues: at limit-up, buy orders cluster at the limit-up price, while sell orders are sparse; at limit-down, the opposite occurs — sell orders pile up, and buy orders are nearly absent. This one-sided market pattern is the fundamental reason why the stock price gets “locked.”

Can You Sell at Limit-Up? Complete Trading Rules Explanation

The answer is: Yes, you can sell, but the execution situation varies greatly.

When a stock hits the limit-up, you can place a sell order. But there’s a key difference:

• Selling order (ask): Usually executes immediately. Since demand to buy exceeds supply at that moment, your sell order is quickly filled.
• Buying order (bid): May not execute right away. Because many buyers are queued at the limit-up price, your buy order might have to wait in line.

In the case of limit-down:

• Buy orders: Usually execute immediately, as there is strong selling pressure.
• Sell orders: May have to wait, since the limit-down price is crowded with sellers wanting to exit.

In simple terms, you can sell at limit-up, and it’s usually easy to execute; you can also sell at limit-down, but it might not be immediate. The asymmetric market liquidity during these times is a typical feature of limit-up and limit-down scenarios.

Why Do Stocks Hit Limit-Up? Five Major Triggers

1. Positive News Sparks

Company releases strong financial reports, quarterly revenue surges, EPS grows significantly, or secures major clients (e.g., TSMC landing Apple or NVIDIA orders). Government policies favoring green energy or electric vehicles can also quickly attract capital — subsidies for green industries, support for EV-related companies — causing funds to flood in and push related stocks to limit-up.

2. Market Capital Flows Chase Hot Topics

AI concept stocks soar due to server demand, biotech stocks rally on new drug news, or fund managers and institutional investors boost small- and mid-cap IC design stocks at quarter-end. These market favorites often ignite limit-up with just a spark.

3. Technical Breakouts Trigger Buying Frenzy

Prices breaking out of long consolidation zones, surging on high volume, or margin debt reaching excessive levels can attract chasing buyers, locking the stock at the limit-up.

4. Major Players Lock Chips

When foreign investors or funds continuously buy large amounts, or major players tightly control the chips of small- and mid-cap stocks, liquidity becomes scarce. Any slight move can trigger a limit-up, making it hard for retail investors to buy.

Why Do Stocks Hit Limit-Down? Fundamental Causes

1. Negative News Impact

Earnings warnings (wider losses, sharp gross margin declines), scandals (financial fraud, executive misconduct), or industry downturns can trigger panic selling, making limit-down almost unavoidable.

2. Market Panic Spreading

Systemic risks (like COVID-19 in 2020) or sharp international market swings (e.g., US stock crashes dragging down TSMC ADRs and Taiwanese tech stocks) can quickly spread panic, causing mass limit-downs.

3. Major Players Offloading & Margin Calls

Major players dumping holdings to lock in profits or cover margin calls (e.g., shipping stocks crash in 2021) can lead to chain reactions of selling, pushing stocks to limit-down.

4. Technical Breakdown

Breaking key support levels like the monthly or quarterly moving averages, or sudden large black candles, signal major liquidation, triggering stop-loss selling and often resulting in limit-down.

Why Do US Markets Lack Limit-Up and Limit-Down? The Mystery of Circuit Breakers

Unlike Taiwan, US markets do not have limit-up or limit-down mechanisms. Instead, they use circuit breakers (automatic trading halts).

When prices fluctuate wildly, the system temporarily halts trading to cool off the market, then resumes once emotions stabilize.

Market-wide circuit breakers:

• S&P 500 drops more than 7%: trading pauses for 15 minutes
• Drops more than 13%: another 15-minute halt
• Drops over 20%: market closes for the day

Single-stock circuit breakers:

• A stock moves more than 5% within 15 seconds: trading is temporarily halted, with duration depending on stock type.

What Should Investors Do When Facing Limit-Up or Limit-Down?

Step 1: Rational Analysis, Avoid Blindly Chasing or Panic Selling

Beginners often make the mistake of chasing limit-up stocks or selling at limit-downs impulsively. The correct approach is to first understand why the stock hit the limit.

If a stock hits limit-down but the company’s fundamentals are intact, and the decline is driven by market sentiment or short-term factors, it may rebound later. In such cases, holding or small-scale accumulation is advisable, rather than rushing to sell.

Conversely, when a stock hits limit-up, don’t rush to chase. First assess whether the positive news is sustainable. If not, it’s better to wait and see rather than chase the high. Blind chasing often leads to being trapped.

Step 2: Related Stocks or US Market Alternatives

When a major stock hits limit-up due to positive news, related upstream or downstream companies in the same industry often also rally. For example, when TSMC hits limit-up, other semiconductor suppliers and equipment firms tend to follow.

Another strategy is to look for US equivalents of the same company. TSMC (TSM) can be traded on US markets via ADRs or overseas brokers, sometimes offering more flexibility to enter positions.

Step 3: Adjust Mindset and Seize Long-Term Opportunities

Limit-up and limit-down are short-term extreme market movements. The real key to successful investing is to see through market sentiment and grasp long-term trends. Good companies hit by negative news and limit-downs can be long-term buying opportunities; stocks that surge on hype require caution.

You can sell at limit-up, and buy at limit-down, but only if your decision logic is clear and you can resist market emotions. Mastering these rules turns extreme market conditions from risks into opportunities for winners.