Trade Like an Insider

Granted legal insider trading may not be as profitable as illegal insider trading,Trade Line an Insider, Legally Articles but it will keep you out of jail and enable you to enjoy the benefits of your profits. Company insiders are required to report any trades made in their company to the SEC within 2 business days of the trade. This is information is available to the public through various internet sites. The trick is to sift through the enormous amount of data to select a company that has the most potential to make you money. Easier said than done! Well in fact it is actually quite simple and it doesn’t take up too much of your time.

In order to simplify the search a few parameters have to be set before you consider an investment. Once you have this in place you will be amazed at how quickly you will identify a potential investment and eliminate numerous others. There are five main points that have to be met before you consider the company for investment purposes. Once you have chosen your stock then we will use a money management technique to maximize profits and minimize losses. More on the money management part later after we discussed the five points that comprise our search criteria.

After you selected a free insider trading report site your first criteria is to consider only BUYS. There is a good reason for this. People sell shares for various reasons such as college tuition for the kids, divorce, vacation, buying a house and many others. However there is only one reason people buy shares and that is to invest and make a profit. Since it is our intention to make a profit we will only consider the recent INSIDER BUYS, those made within the past 2 weeks.

The second point to consider is only BUYS made by senior officers such as CEO, CFO, EVP etc. Directors and owners have a different agenda sometimes for buying shares whereas the senior officers are employees of the company and are close to day to day operations. They are the ones on the front line, they generally have a feel as to how the business is doing. The lower their rank, the lower their pay scale, hence all the more significant is their purchase of shares.

Third, and this is subjective, however for our purposes we will use a general rule of thumb. Only consider purchases that appear to be an investment and represent investment dollars. Purchase of 30 shares at $9.00 is not what we would call a significant onlineinsider investment, or for that fact a serious one, especially for a senior officer. However, a purchase of 1500 shares at $9.00 made by the same officer carries more weight and considers our attention. As a rule of thumb the investment should be over $10,000 and be at least a reasonable number of shares.

Fourth, only consider company’s whose shares trade over $5.00 per share and are on a major exchange. Stay away from penny stocks. A definition of a penny stock is any stock whose shares trade below $5.00 per share. There are times when large companies will fall below $5.00 per share but they are still on a major exchange and usually the circumstances are extraordinary. It is best to wait till they are back over $5.00 before considering an investment.

Last but least is to only consider those company’s whose shares are trading near where the insiders made their purchase. If the insiders bought shares substantially lower than the current market price then the stock should be eliminated from the list. Once again this is subjective but 50 percent below the current market price would be considered as substantially lower. On the other hand 15 percent to 20 percent is tolerable. You are looking for value, so be patient.