Whenever a stock trades its limits are defined within which it can trade and move , its generally 5%,10%,15%,20 % of the last days closing price , so for example if a stock has previous day closing price of Rs. 50 and its circuit limits are 10% then the stock can move from Rs 45 to Rs 55 i.e 10 % both sides without any issue , if the stock starts moving above Rs. 55 its called being in Upper Circuit and if it falls below Rs 45 it will move into lower circuit.
The limit within which stock stock can move is based on it’s volitily and is decided based on the rules set by SEBI which every stock exchange has to follow , so the question is why the stock moves into Upper Circuit or Lower Circuit ?
A stock moves into upper circuit because it has too many buyers and no sellers , meaning that the demand is astronomical as compared to supply , if a stock moves in UC the trading isn’t stopped but if you place a buy order your order will not go through because there are no sellers.
Similary a stock moves into lower level because there are too many sellers and literally no buyers hence the stock is flooded with sell orders and no buy orders are placed .Below is an example of daily chart of Alok industries which was in UC till 3rd july and after that the sellers came through and the stock is stuck in LC now.
Trading isn’t stopped if a stock moves into UC or LC but trading is stopped if an index moves into LC or UC as per SEBI guidelines , if an index moves into LC/UC trading stops and resumes after a predefined interval , LC/UC in Indexes occur seldomly and are very rare , they occur in Index only when extremely bad or good news is circulating in Media.