Can you buy stocks when they hit the daily limit? Understand trading rules and investment risks in this article

Many new investors entering the stock market often have a question: When a stock hits the limit-up, can I still buy it? This simple question actually involves the entire market trading mechanism. The answer is: Yes, you can, but whether your order will be filled and whether you need to queue up depends on other factors. Limit-up and limit-down seem like “forbidden zones,” but in reality, they are just extreme market fluctuations and do not completely freeze trading. Understanding this mechanism is crucial for beginner investors because if you don’t, you may make wrong decisions during volatile market conditions.

Limit-up is not a forbidden zone, but buying requires queuing

What is a limit-up? Simply put, it’s when a stock’s price hits the exchange’s maximum allowable increase and cannot go higher. For example, in Taiwan’s stock market, the daily price change limit is 10% of the previous day’s closing price, which is the limit-up. For instance, if TSMC closed at NT$600 yesterday, the highest it can rise today is NT$660. Once it reaches NT$660, it’s “frozen.”

So, can you buy at the limit-up? Yes. You can place a buy order at the limit-up price. But there’s an important caveat: Your order may not be filled. Why? Because everyone wanting to buy is already queued up, waiting to buy at the limit-up price. If you place your order later, you might have to wait a long time before it gets executed, or it might not get filled at all if the stock hits the limit-down later.

Conversely, if you place a sell order at the limit-up, the chances of it being executed are much higher. During limit-up, buying interest is strong, and there are more buyers than sellers. Your sell order can be quickly matched. That’s why, on a limit-up board, you often see buy orders piling up, while sell orders are almost empty — a clear visual.

Limit-down also allows trading, but selling requires patience

Limit-down works similarly but with the opposite logic. When a stock hits the limit-down, its price drops to the daily lower limit, for example from NT$600 to NT$540 (a 10% drop), and gets “locked.” At this point, if you place a buy order, it will likely be filled quickly because many market participants want to sell and escape the stock, leading to a surge in sell orders.

However, if you want to sell at the limit-down, you need to queue up. Since the sell orders are already piled up, the exchange processes them based on price priority and time priority. You have to wait until earlier sell orders are filled before it’s your turn. Patience becomes a luxury in this scenario.

To summarize simply:

• Limit-up state: Buying is difficult to fill, selling is easy to execute.
• Limit-down state: Buying is easy to fill, selling is difficult to execute.

Understanding the market signals behind limit-up and limit-down

Why do stocks hit limit-up or limit-down? Knowing the reasons behind these moves is more important than just knowing whether you can buy or sell.

Limit-up usually results from: positive news such as strong quarterly earnings, major orders (like TSMC winning large contracts from Apple or NVIDIA), or market capital inflows. Government policies favoring certain industries, like green energy or electric vehicles, can also drive stocks to limit-up. Technical factors can also trigger limit-up, such as breaking out of long consolidation ranges with increased volume, or high short interest causing short squeezes. The hardest to predict is when large institutional players lock in their positions — foreign investors, investment trusts, or major funds tightly hold small-cap stocks, leaving no available shares to sell, and a sudden surge can push the stock to limit-up.

Limit-down causes are also varied: poor earnings reports, declining gross margins, executive scandals, or other negative news. Market panic is another major factor — for example, during COVID-19 in 2020, many stocks hit limit-down; international market crashes, like the US stock market plunging, also drag down Taiwan stocks. Major players offloading holdings can cause sharp declines, especially if they lure retail investors with initial rallies then dump shares. Margin calls can also trigger rapid declines — as seen in the shipping stock crash in 2021, where falling prices triggered forced liquidation, overwhelming sellers. Technical breakdowns, such as falling below key support levels like the monthly or quarterly moving averages, can also lead to panic selling, with large volume black candles often signaling institutional distribution and a high likelihood of hitting the limit-down.

The US market uses circuit breakers instead of limit-up/down

The US stock market operates differently. It does not have limit-up or limit-down rules but instead employs circuit breakers, also called automatic trading halts. When prices fluctuate too violently, trading is temporarily paused to give the market time to cool down.

US circuit breakers are divided into market-wide and individual stock mechanisms. Market circuit breakers trigger when the S&P 500 drops more than 7%, pausing trading for 15 minutes; if the decline reaches 13%, another 15-minute halt; if it hits 20%, trading is halted for the day. Single-stock circuit breakers are triggered if a stock’s price moves more than 5% within 15 seconds, causing a temporary trading halt.

Compared to Taiwan’s 10% limit, which directly freezes the price, the US circuit breaker temporarily halts trading to allow cooling-off, then resumes. Both systems serve to prevent panic and excessive volatility, but they operate differently.

Limit-up is tradable, but how can investors avoid pitfalls?

Since limit-up allows buying and limit-down allows selling, what are the common pitfalls for novice investors?

First, never blindly chase the rally or panic sell at the drop. Seeing a stock hit the limit-up and rushing to buy without understanding why is a major mistake. You need to determine whether the limit-up is driven by genuine positive news or just short-term speculation. Can the positive factors sustain further gains? If unsure, it’s better to wait and observe. Similarly, don’t panic sell at the limit-down if the company’s fundamentals are sound; it might just be market sentiment or short-term factors dragging the price down, and the stock could rebound later. In such cases, holding or small-scale accumulation is the right approach.

Second, consider related stocks. For example, when TSMC hits the limit-up, related industry peers and upstream/downstream suppliers often move in tandem. Buying related stocks can reduce the risk of chasing a single limit-up stock. Also, some Taiwanese companies are listed in the US via ADRs (American Depositary Receipts). Using overseas brokers or proxy trading can sometimes offer smoother trading experiences.

Finally, develop your own trading discipline. Don’t be fooled by the surface phenomena of limit-up or limit-down. Understand what drives the market — what’s the momentum? How long can it last? Where are the risks? Think carefully before acting. Limit-up can be a good entry point if you understand the context, but only if you buy smartly.