We expect that, you have read the various pages of our website and have reached the stage of requiring an understanding of a trade and its rules. Before we go into the rules of trading, it would be imperative for you (the investor) to understand what a trade is.
Most people across the globe believe, that:
When they purchase equity shares of a chosen company or enterprise from the stock markets, they have traded.
When others are holding equity shares of a chosen company or enterprise which they have purchased earlier from the stock market, they have traded.
And, when others sell equity shares of a chosen company or enterprise in the stock market (which of course they have purchased earlier), they too have traded.So, we have buyers, holders and sellers who have all traded! Take a step back, and look at the sequence: buying, holding and selling. You would realize that these are the three parts of the same composite trade.
To elaborate, when we purchase a stock or equity shares of a company or enterprise from the stock exchange (or market), we have only initiated a trade. While we are holding the stock or equity shares in our portfolio, we are expected and required to manage this trade to enable the realization of optimum profits. Further, when we sell a stock or equity shares of a company or enterprise in the stock market, we are expected to realize a profit. However, in certain circumstances we may be required to minimize a loss (which may be the result of adverse market action, causing the stock or equity share to perform contrary to our expectation).
This brings us to the realization that from the time we initiate a trade (with its purchase) to the time we finally close this trade (with its sale), there is a period of time which separates the two events. This interval of time may be as short as a few hours of a trading day, a few days or as long as a few months to a few years. Depending on the holding period, the management of the trade becomes of primary importance. In fact, it is in the correct management of the trade (during its holding period) that an investor makes a profit.
We would like to bring to your attention here, that depending on the length of the holding period we would also be required to bring into the equation the time value of money. We shall elaborate on this at a later stage.
At this stage it would be suffice for you (the investor) to understand that the rules of trading would pertain to the 3 distinct parts of a trade (which are buy, hold and sell) and would be segregated accordingly.