August 13, 2007 at 10:27 am | | Comments 4

Insider Activity

One thing I get asked quite a bit about is insider activity. People want to know if a stock should move up on insider buying, or if it should go down on insider selling. Many will ignore perfectly good chart patterns if the insider activity doesn’t suit them, instead deferring to what company execs are doing over time rather than catch a swing trade for a multi-day move.

My personal stance on the topic is a simple one: I ignore it. Here are a few reasons why:

    There are lots of reasons to sell. Maybe junior is going to college and a corporate executive wants to free up a little cash to pay tuition. Maybe they’re buying a summer home or a boat or a collector car. Maybe they’re even afraid their stock will go down. But don’t jump to the worst conclusion when you see insider selling, because you never know their motives. And even if insider buying is taking place, that sure doesn’t mean the stock will soon reflect that optimism. Corporate executives can and will be wrong often, so don’t bank on higher prices even if you see insider buying. They’re not the ones moving the stock anyway.

    Good chart patterns should still play out. A bullish chart is based on recent supply & demand in the stock, so if the pattern confirms I’ll take that trade with managed risk. If it never confirms, I never take the trade and there’s no harm done. But what happens over time with insider activity isn’t what will drive the stock. Institutions (big funds) move the stocks, so if they’re accumulating or distributing stock, the chart will show it.

    My timeframe is days, not quarters. Even if Joe Insider has been selling (or buying) shares for a while now, why would I care? Suppose it is based solely on where they think the company is headed, even if they’re correct it’s going to take lots of time to play out – usually several quarters at a minimum, and I’ll be long gone by then. Because stocks fluctuate, there will still be good moves taking place most likely in both directions, offering chart-based plays in the meantime for active traders like me.

Good trades still boil down to the charts and managing your risk. Don’t jump to any conclusions that a CEO or CFO is going to nail trades in their company’s stock. They aren’t traders, they’re businessmen! If you’re a short-term trader, insider activity should be the last thing on your list of things to consider before buying or selling any given stock.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

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  1. I’m so glad I found your blog. I absolutely love it. The way you trade, the rules you use, your whole mentality of trading is basically identical to mine.

    I bookmarked this blog. I’ll be checking in on a daily basis.

  2. Wow, thank you Dan, I’m sure glad to hear you’re finding the posts useful to your trading. I hope you’re trading well in this market, and come back & comment here anytime you’d like!


  3. Hi Jeff
    I’ve been criticized time and again when I was say: “I don’t care about dimwitted executives buying or selling stocks of company they temporary milk”
    Just to show why it does not matter I wrote a post where I timed director’s buys with price action. (
    I like your writings, style, hope you do well ( sometimes “doing nothing” is doing well too – that what I do last week – nothing and not too much last month except TMA short )

  4. DavidDT,

    Yes it’s always funny to actually see how poorly timed some of the insider activity is. Just goes to show that their motivations cannot be taken at face value (buys = stock headed higher, sells = stock headed lower), and that they can be flat-out wrong so often.

    And I couldn’t agree more, just as you said ‘sometimes doing nothing is doing well too’….if only more traders understood how true that is, they’d be so much better off and have clearer minds to continue growing their accounts.

    Keep up the good work on your blog and thanks for reading mine! Have a great week,


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