Insider trading is the equivalent of a gambler sitting down at the roulette table and betting a large chunk of money because he knows a piece of information that will almost certainly make the ball land on black.
He’s not really a gambler at all, is he?
The company insider knows about a new advertising strategy, product launch or other circumstance that will most likely have a positive impact on the company’s stock price, so he uses that information to his own benefit and bets on his own company before the information is made public.
It’s cheating and, to use a more sobering term, illegal.
But are the company officers and directors with privileged information the only ones who can profit from insider knowledge? ABSOLUTELY NOT. You can too!
By understanding the signs and maneuvers behind insider trading, you can get a seat at the roulette table and base your own actions on what the insiders’ actions are telling you.
The Good News
Whether a company official is buying shares based on privileged information or for legitimate reasons, he or she has to report the transaction by law.
You and I can then easily gain access to insider transactions.
For instance, we can see that approximately 140,000 shares in Dick’s Sporting Goods (DKS) were purchased on May 28 by three company insiders. We can also see what type of transaction it was, the stock’s price at which the transaction was completed and the estimated value of the transaction.
This is how you can get a seat at the roulette table. By watching which insiders are making moves.
The Better News
After looking at who is buying their own company’s stock, you can now use that information to sure up your roulette (trading and investing) strategy.
This can lead to huge profits!
The key is to use the insider transaction information as another indicator in your trading system. If all of your other signs are pointing toward the stock rising, then serious insider buying can be a telling sign that you need to get in on this stock before it leaps higher.
But Beware! If the rest of the indicators don’t point toward a buy signal, don’t let the insider transactions force your emotions into action.
This tells us a valuable piece of information: Don’t Use Insider Transactions as Your Only Reason for Buying a Stock!
However, if DKS had a promising chart with several positive indicators, the insider transactions would be the final piece of knowledge allowing you to make the perfect bet at the roulette table.
Don’t Be Tricked
One thing to be aware of is that company officials and other insiders aren’t dumb, and this will not be the first or last time they sit down to gamble. They have some tricks up their sleeve.
For instance, the insider buying at Dick’s Sporting Goods appears significant, but if they turn right around and sell all of those shares back then it was nothing more than a ploy. They would have been trying to trick the market into thinking their insider buys were a sign that everyone should jump in.
Another rule is to not allow insider transactions to influence your sells. While insider buys are significant, insider sells could mean the company official needs some cash for personal reasons, not because the company is going down.
Using all of these tools and signs can help you walk away from the roulette table a BIG Winner! The Key is to know WHEN to use that information.
The trading strategy regarding insider transactions goes much further, and the Stock Code Breaker course will tell more secrets of insiders, what patterns to watch for, how to time your moves along with the insiders and much more.
