Can you still buy when stocks hit the limit down? Master the core rules and practical strategies for trading during limit down days

In stock market investing, many beginners become panicked when they see a stock hit the limit down. The most common question they ask is: “Can I buy at the limit down?” In fact, the trading rules at the limit down are completely different from those at the limit up. Mastering these details can determine your timing and investment results. Let’s start from the basics and delve into these two extreme market phenomena.

What are Limit Up and Limit Down? Understanding the Extremes of Price Fluctuation

Before answering “Can I buy at the limit down,” we need to clarify the definitions of limit up and limit down. Simply put, limit up and limit down represent the most extreme price movements, reflecting a market dominated by either buying or selling pressure.

Limit Up refers to a stock price reaching the maximum allowable increase for the day, beyond which it cannot rise further. Conversely, Limit Down means the stock price has fallen to the daily minimum limit and cannot decrease further. For example, in Taiwan’s stock market, regulators restrict daily price changes to no more than 10% of the previous day’s closing price. If TSMC closed at NT$600 yesterday, today its price can only go up to NT$660 or down to NT$540. Once these limits are reached, the price is “frozen.”

Can You Really Buy at Limit Down? Detailed Trading Rules

This is a question many investors care about most. The answer is: Yes, you can absolutely buy at limit down, and your order will almost immediately be filled. The logic is straightforward—when a stock hits the limit down, there are far more sellers than buyers, and the market is flooded with sell orders. If you place a buy order at that moment, it will almost instantly execute because there are many sell orders waiting to be matched.

On the other hand, if you want to sell at limit down, you may need to wait in line. Since the sell orders are already piled up at the limit down price, your sell order will be queued until it can be matched.

To understand this better, let’s look at the order book situation. In a limit down stock, the buy side is usually empty or sparse because most investors want to exit the stock. The sell side, however, is filled with sell orders. This one-sided market imbalance is a typical feature of limit down conditions.

What about trading at Limit Up? How do the buying and selling rules work?

For comparison, we also need to understand the rules during limit up. At limit up, normal trading is still possible, but the execution dynamics are the opposite of limit down.

When a stock hits the limit up, demand to buy far exceeds supply to sell. If you place a buy order, you may need to queue at the limit up price because many investors are eager to buy. Conversely, if you place a sell order, it will almost immediately be filled due to strong buying interest.

This comparison shows that the trading logic at limit up and limit down is completely opposite. Mastering this is crucial for making decisions during extreme market conditions.

How to identify if a stock is at limit up or limit down? Spot it at a glance

In practice, identifying limit up or limit down is simple. If you see a stock’s price chart forming a straight line with almost no fluctuation, it is very likely hitting the limit up or limit down.

In Taiwan’s trading software, these situations are visually distinguished by colors:

• Red background: indicates the stock is at limit up
• Green background: indicates the stock is at limit down

This visual cue allows investors to quickly recognize extreme market movements.

Why do stocks hit limit down? An in-depth look at five main reasons

Understanding why stocks hit limit down helps you decide whether to buy during these moments. The main causes are:

1. Negative news directly impacting market sentiment

Negative news is the most direct cause of limit down. Common scenarios include poor earnings reports (e.g., larger losses, significant margin decline), scandals (financial fraud, executive misconduct), or industry downturns. When such major negative news is released, panic selling surges, and investors have no choice but to sell.

2. Systemic risk and market panic

Sometimes, limit downs are not due to individual stocks but stem from overall market panic. During the COVID-19 outbreak in 2020, countless stocks hit limit down as the entire market was engulfed in systemic risk fears. International market influences also matter; for example, when the US stock market crashes, TSMC’s ADRs may plunge first, dragging down Taiwanese tech stocks to limit down.

3. Major institutional investors offloading holdings, retail investors become victims

Experienced investors know that big players often use “buy high, push up, then dump” tactics. They build positions, promote the stock to attract retail follow-on, then quietly sell at high levels. Retail investors caught in the trap find it hard to escape. Worse, margin calls can trigger forced liquidation, as seen during the 2021 shipping stock crash, where prices plummeted and margin calls caused massive sell-offs, leaving many retail investors unable to react in time.

4. Technical breakdown signals

When a stock breaks key support levels (like monthly or quarterly moving averages), it often triggers stop-loss selling. A sudden surge in volume with a long black candlestick indicates a clear signal of institutional dumping. As stop-loss orders flood in, limit down can occur.

5. Excessive short interest leading to short squeeze

High short interest can cause a short squeeze, but in extreme cases, forced covering by short sellers can accelerate the decline, pushing the stock into limit down.

Market protection mechanisms: Taiwan’s circuit breakers vs. US market’s circuit breakers

Beyond Taiwan, let’s look at international markets. The US stock market does not have limit up or limit down rules but employs a different safeguard called “circuit breakers,” also known as automatic trading halts.

In simple terms, when market volatility exceeds certain thresholds, trading is temporarily paused to allow cooling-off. The US circuit breaker system has three levels:

• Level 1: If the S&P 500 drops more than 7% from the previous close, trading halts for 15 minutes.
• Level 2: If the decline exceeds 13%, another 15-minute halt.
• Level 3: If the decline exceeds 20%, trading is halted for the rest of the day.

For individual stocks, if their price moves more than 5% within 15 seconds, trading may be temporarily suspended. The standards vary depending on stock type.

This reflects differing regulatory philosophies: Taiwan uses “price limits,” while the US employs “trading time halts.”

Staying calm during limit down: Tips for investors

Since we now know that buying at limit down is possible, the key questions are: Should I buy? When? This requires higher-level judgment.

Step 1: Rational assessment—understand the true reason for the limit down

Many beginners make the mistake of blindly chasing after rising stocks or panicking during declines. Seeing a limit down, they sell in fear; seeing a limit up, they rush to buy. Rational investors should first stay calm and analyze why the stock hit the limit down.

If a stock hits limit down but the company’s fundamentals are solid, with good business models and healthy finances, and the decline is due to short-term market sentiment or temporary factors, it may rebound later. In such cases, the best approach is to hold existing positions or add small amounts, waiting for a rebound after market stabilization.

Conversely, if the limit down is caused by company scandals, industry recession, or institutional dumping, you should stay away from that stock, regardless of the price.

Step 2: Avoid chasing highs blindly—wait for confirmation signals

When a stock hits limit up, don’t rush to buy immediately. First, analyze whether there are genuine catalysts supporting the rally. Will the positive news sustain the upward momentum? How long can the market enthusiasm last? If you’re unsure, the best approach is to observe and wait.

Step 3: Trade related stocks or find alternative opportunities

When a stock surges on major positive news, related industry stocks or peers often follow suit. For example, when TSMC hits limit up due to large orders from Apple or NVIDIA, other semiconductor suppliers and manufacturers tend to rally as well.

In such cases, consider investing in these related stocks to participate in the trend while avoiding the risks of chasing the initial limit-up stock at its peak. This is a smarter strategy.

Step 4: Leverage international market opportunities

Some Taiwanese companies are also listed in the US. For example, TSMC’s US stock code is TSM. Investing through overseas brokers allows trading in the US market, which has no limit up/down rules. The liquidity and trading space are more flexible, providing more opportunities.

In summary, buying at limit down is feasible, but only if you understand the reason behind the decline and have a clear buying rationale. Blindly chasing highs or lows is the easiest way to lose money. To become a mature investor, learn to stay calm during extreme market conditions, and base your decisions on data and logic rather than emotions.