What to do when a stock hits the daily limit and can't be sold? Master trading skills to avoid getting stuck

Many investors have encountered this awkward situation: a stock they are optimistic about suddenly hits the limit-up, and they want to sell but find they can’t; or a stock keeps hitting the limit-down, and although they want to cut losses, no one is willing to buy. What secrets are hidden behind this? In fact, limit-up and limit-down are not trading obstacles but extreme expressions of market psychology.

The True Face of Limit-Up and Limit-Down: Not Forbidden Zones, But Mechanisms

Definitions of Limit-Up and Limit-Down

In the Taiwan stock market, regulators set the maximum daily price fluctuation at 10% of the previous trading day’s closing price. For example, if TSMC closed at NT$600 the day before, the highest price on the current day can only rise to NT$660 (limit-up), and the lowest to NT$540 (limit-down). When the stock price hits these extreme levels and remains there, limit-up or limit-down phenomena occur.

Visual Identification Methods

On trading software screens, limit-up stocks are usually marked with a red background, while limit-down stocks are marked with a green background. A more intuitive way is to look at the trend chart—if the stock price moves into a horizontal straight line with no fluctuations, it can be confirmed that the stock has entered a limit-up or limit-down state. At this point, check the buy and sell orders—during limit-up, buy orders pile up, and sell orders are scarce; during limit-down, the opposite occurs, with abundant sell orders and almost no buy orders.

Key Question: Can Limit-Up Lock-in Prevent Selling? Can Limit-Down Be Traded?

Trading Dilemmas During Limit-Up

Many investors mistakenly believe that they cannot trade during a limit-up. In fact, they can place orders during this period, but the transaction results are entirely different:

• Placing Buy Orders: Since the buy queue is already full at the limit-up price, new buy orders need to wait in line and won’t be executed immediately. This is the so-called “limit-up lock-in” phenomenon—those wanting to buy in are already queued, making it difficult to jump the line.
• Placing Sell Orders: Almost instant execution. Because there are far more investors eager to buy than to sell, your sell orders will be quickly absorbed.

For investors holding limit-up stocks who are eager to exit, this creates a dilemma.

Reverse Dilemma During Limit-Down

The logic is completely opposite:

• Placing Buy Orders: Executed immediately. Many sellers want to offload at the limit-down price, so buy orders are quickly filled.
• Placing Sell Orders: Need to queue and wait. Since countless investors want to sell at the limit-down price, your sell order may not get in line.

Why Do Limit-Up and Limit-Down Occur? Analyzing the Driving Forces

Core Factors Triggering Limit-Up

1. Major Positive News: Better-than-expected financial reports (revenue, EPS surge), securing large orders or contracts, government policies support (such as green energy subsidies, electric vehicle incentives).

2. Hot Topics Exploding: Market capital flows focus on specific concepts, e.g., AI stocks surge due to increased computing power demand, biotech stocks soar on new drug news, and funds boost top-performing stocks during quarterly earnings seasons.

3. Technical Breakouts: Price breaks out of long-term consolidation ranges, high short-selling (margin) balances trigger short covering, or abnormal volume accompanies price increases.

4. Chip Lock-In: Foreign investors or funds continuously buy in large quantities, major players secretly control the stock, leading to a scarcity of circulating shares, making it easy to lock in a limit-up with a push.

Core Factors Triggering Limit-Down

1. Negative News Impact: Deterioration in financial performance (widening losses, declining gross margins), company scandals (financial fraud, executive involvement), obvious industry recession signals.

2. Systemic Risks: Sudden global events (like COVID-19 pandemic) cause panic selling, international stock market crashes lead related stocks to fall simultaneously.

3. Main Players Offloading and Trapping: After rapid gains, large investors unload holdings, margin calls trigger forced selling, retail investors are forced to cut losses, causing a stampede effect.

4. Technical Breakdown: Price falls below key support levels like the monthly or quarterly moving averages, long black candlesticks with high volume, and deteriorating technical indicators.

The US Stock Market Has No Limit-Ups or Limit-Downs, But Has Circuit Breakers

System Differences

Unlike Taiwan stocks’ limit-up and limit-down restrictions, the US market employs a different risk management approach. The US stock market does not have daily price fluctuation limits but relies on circuit breaker mechanisms to prevent market chaos.

How the US Circuit Breaker Works

The circuit breaker system has two levels:

• Market-Wide Circuit Breakers: If the S&P 500 drops more than 7% within a trading day, trading is automatically paused for 15 minutes; if the decline reaches 13%, another 15-minute pause; if it hits 20%, trading is halted for the rest of the day.
• Single-Stock Circuit Breakers: If a stock’s price moves more than 5% within 5 seconds, trading is temporarily halted, with duration depending on the stock’s nature.

Comparison Table

Practical Strategies: Avoid Blind Chase and Panic Selling

Step 1: Know Yourself and the Market

The most common fatal mistake for beginners is chasing after a limit-up or selling at a limit-down. The correct approach is to first understand the true situation behind the event.

For example, if a stock hits the limit-down but the company’s fundamentals are unchanged, and only market sentiment or short-term volatility drags it down, it is likely to reverse upward later. In such cases, consider holding or adding small positions on dips.

Conversely, even if a stock hits the limit-up, assess whether the rally is supported by solid fundamentals. If the positive news lacks follow-up, it may be a fleeting phenomenon, and waiting on the sidelines is often the best choice.

Step 2: Avoid Direct Risks, Focus on Related Stocks

When interested in a stock that hits the limit-up due to positive news and you cannot enter immediately, consider these alternatives:

• Buy related upstream or downstream companies or competitors. For example, when TSMC hits the limit-up, other semiconductor design firms or process service providers often rise in tandem, providing alternative entry points.
• Look for other stocks within the same theme. If you can’t catch the hot concept stocks, focus on other related companies in that sector.
• Use proxy orders or overseas brokers to buy US stocks. Many Taiwanese-listed companies are also traded in the US (e.g., TSMC’s ADR), providing another trading channel.

Step 3: Set Trading Plans and Control Risks

• During limit-up, if you hold the stock, do not rush to sell all at once; consider selling in parts as the price rises.
• During limit-down, evaluate the fundamentals before deciding whether to add or cut positions, avoiding emotional decisions.
• Set price alerts for buy/sell orders; when the stock price moves away from the limit-up or limit-down price, execute your pre-set plan promptly.

Conclusion: Understand the Mechanisms, Master the Volatility

Limit-up lock-in and limit-down situations that seem like dilemmas actually have solutions. The key is to understand how the market operates, avoid blindly chasing trends, and maintain disciplined execution. Every limit-up and limit-down is a magnification of market psychology—by reading it correctly, you gain the主动权 in your investments.