Can you sell at the daily limit? Understand the trading rules during extreme stock fluctuations in one go

The most loved and feared phenomena in the stock market are limit-up and limit-down boards. Whenever stock prices hit these extreme points, investors often have the same question: Can stocks really be sold smoothly when they are at the limit-up board? This question seems simple, but behind it lies complex market mechanisms and trading logic. Today, let’s uncover this mystery together.

Understanding What Limit-Up and Limit-Down Boards Are

Before discussing trading rules, we need to clearly understand these two concepts. Limit-up is the state when a stock’s price rises to the legal upper limit within a trading day, preventing further upward movement; Limit-down is the opposite, when the price drops to the day’s lower limit.

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. Suppose TSMC closed at NT$600 yesterday; today, the maximum price can rise to NT$660 (limit-up), and the minimum to NT$540 (limit-down). This restriction is designed to prevent excessive volatility and protect investors’ interests.

On the trading screen, stocks at limit-up are marked with a red background, while limit-down stocks are marked with a green background, making it easy for investors to identify. When you see a stock’s price chart become a completely flat line, it likely means the stock has hit the limit-up or limit-down.

Can You Sell When a Stock Hits the Limit-Up? The Trading Trap in a Buyer’s Market

This is the most common question investors ask. The answer is: yes, you can sell, but it’s very difficult to execute.

What happens when a stock hits the limit-up? The scene is usually: buy orders pile up, while sell orders are almost nonexistent. This indicates that demand to buy far exceeds supply to sell, and the market is dominated by buyers.

In this situation, if you place a sell order, the probability of execution is very high because many buyers are waiting to buy. It seems like good news, but there are hidden risks. Selling at the limit-up often means you are selling near the peak, but this is usually just a short-term high point. Many retail investors, seeing the limit-up, rush to take profits, missing out on larger gains later.

Conversely, if you want to buy at the limit-up level, the situation is completely different. Your buy orders will be queued at the end and may not be filled immediately. Sometimes, you have to wait until the stock breaks through the limit-up to get filled. For investors chasing the high, this often results in regret — seeing the opportunity but not being able to buy.

The Buying and Selling Logic at the Limit-Down Board

When a stock hits the limit-down, the situation is the opposite. Sell orders flood the market, while buy orders are sparse. The market is driven by panic selling.

In this environment, if you place a buy order, it will likely be filled quickly because many sellers are eager to offload their stocks. But if you place a sell order, you need to queue and may face a long wait, possibly unable to sell at your desired price. For investors aiming to cut losses, this can be frustrating, as they may not be able to exit at their expected price.

Interestingly, the limit-down situation also presents an opportunity — if the decline is driven by short-term market sentiment rather than fundamental problems with the company, small-scale, phased buying might become a long-term profit opportunity.

Why Do Stocks Hit Limit-Up and Limit-Down?

Factors Behind Limit-Up Movements

1. Positive News Triggers

When a company announces impressive financial results — such as significant quarterly revenue growth, soaring EPS, or lands major clients — the market reacts immediately. For example, if TSMC secures large orders from Apple or NVIDIA, its stock price often hits the limit-up. Policy incentives, like government subsidies for green energy or electric vehicles, can also have the same effect, attracting substantial capital inflow into related stocks.

2. Market Sentiment and Thematic Effects

AI concept stocks surge due to exploding server demand, biotech stocks frequently become market favorites, and near quarter-end, fund managers and major players often team up to push up small- and mid-cap electronics stocks, causing them to hit the limit-up with a slight trigger.

3. Technical Breakouts

When a stock breaks out of a long consolidation range with increased volume, or when high short interest causes short squeezes, these signals attract chasing buyers, locking the stock at the limit-up.

4. Large Institutional Control

When foreign investors and institutional funds continuously buy in large amounts, or when major players tightly lock in the chips of small- and medium-cap stocks, there are hardly any stocks available for sale. Any minor rally can push the stock to the limit-up, making it impossible for retail investors to buy.

Factors Behind Limit-Down Movements

1. Negative News

Earnings misses, such as widening losses, declining gross margins, or financial scandals, are common causes. When an entire industry enters a downturn, panic selling can cause stocks to plummet to the limit-down.

2. Systemic Risks and Market Panic

During the COVID-19 outbreak in 2020, many stocks hit the limit-down due to panic. A sharp decline in US tech stocks also dragged down TSMC ADRs, pulling Taiwan tech stocks into limit-down. Market sentiment often causes more damage than fundamentals.

3. Major Sell-offs and Margin Calls

Major players offload stocks after rapid gains, trapping retail investors. Margin calls exacerbate the situation — when stock prices fall to certain levels, margin investors are forced to liquidate, creating a surge in selling pressure. The 2021 shipping stock crash is a typical example, where many retail investors couldn’t escape in time.

4. Technical Breakdowns

When stock prices break below key support levels like the monthly or quarterly moving averages, it triggers stop-loss selling. Sudden large black candlesticks often signal major institutional dumping. These technical signals can trigger chain reactions, ultimately leading to limit-down.

Differences in Risk Control Mechanisms: Taiwan vs. US Markets

Taiwan’s stock market uses limit-up and limit-down restrictions to control volatility — individual stocks are limited to a 10% daily fluctuation, and once the limit is reached, the price is frozen.

In contrast, the US market does not have limit-up or limit-down mechanisms. Instead, it employs circuit breakers to prevent excessive volatility.

When the S&P 500 drops more than 7%, trading is automatically halted for 15 minutes for adjustment. If the decline reaches 13%, another 15-minute halt occurs. A 20% drop results in a full-day market close. For individual stocks, if a stock’s price moves more than 5% within 15 seconds, trading is temporarily suspended, with duration depending on the stock and market conditions.

Both mechanisms have pros and cons. Taiwan’s limit-up/limit-down system provides clear, visible limits for investors, while the US’s circuit breakers offer more flexibility but introduce greater uncertainty.

How to Rationally Respond When Facing Limit-Up Boards

Overcome Emotions and Make Calm Judgments

The biggest mistake beginners make is blindly chasing after limit-up stocks or panicking and selling at limit-down. True investors should first understand why the stock is hitting the limit-up or limit-down before deciding on their next move.

When a stock hits the limit-down, first assess: is this due to company-specific issues or just market sentiment or short-term factors? If the company’s fundamentals are sound and the decline is temporary, it could be a good opportunity for small-scale accumulation or holding. Markets often reward patient investors during extreme pessimism.

Similarly, when a stock hits the limit-up, avoid rushing to buy. Objectively evaluate whether there are substantial positive catalysts supporting the rally and whether these can sustain further gains. If the fundamentals are weak, it’s safer to stay on the sidelines.

Seek Alternative Trading Opportunities

When a stock hits the limit-up due to positive news, related upstream or downstream companies, or similar stocks, often also move. For example, if TSMC hits the limit-up, other semiconductor stocks may follow. Instead of chasing the main stock, consider investing in related or supporting stocks, which often carry lower risk and better opportunities.

Many Taiwanese companies are also listed in the US. TSMC (TSM) is a prime example. Through foreign brokers or overseas trading platforms, investors can participate in the same company’s US stock, sometimes avoiding the restrictions of Taiwan’s limit-up/limit-down system.

Diversify and Allocate

The fundamental risk management strategy is to build a diversified portfolio. Avoid concentrating all funds in stocks prone to hitting limits; instead, allocate across different industries, market caps, and even overseas assets. This way, even if some stocks reach their limits, the overall portfolio remains relatively stable.

Limit-up and limit-down boards reflect extreme market sentiment. True investment wisdom lies not in making perfect decisions at these extremes but in understanding the mechanisms behind them, avoiding emotional traps, and maintaining rationality and patience. Whether stocks can be sold smoothly at the limit-up is less important than your understanding of market rules and your long-term investment strategy.