Stock Picks: Taking Advantage of Insider Trading

Using inside information to gain advantage in a trade is illegal. However, it still goes on all the time. Insider trading is always a bad idea, but that doesn't mean you can't benefit from other people's insider trading. Now, that is a good idea!

When insider trading is going on there are clues about it that can be read from market activity. By paying attention to these insider trading patterns you may be able to turn a pretty profit.

What sort of patterns should you look for? The key to monitoring other people's insider trading is to watch for significant changes in the price of stocks without any major news hitting the news wires about those same stocks.

If you suspect insider trading is going on, do a thorough check of the stock picks you think may be affected by it. Look to see if there are any particular changes that may be affecting the stock price.

Such changes are called "newsworthy events." If a newsworthy event is supposed to happen a day or two in the future, it's likely that the price of the stocks you're monitoring may change in anticipation. Newsworthy events include announcements from all sorts of research-related results, conferences, announcements of earnings, or other news items about the stock, such as facts about the CEO, etc.

Be careful to do a thorough investigation of the stocks for newsworthy events before concluding that insider trading may be occurring. After all, if you aren't very familiar with your stock, you may think insider trading is occurring when really you simply aren't fully informed about what's going on with the stock picks in question. This isn't insider trading, it's actually just normal everyday trading.

If you have a good broker, it's likely you'll be able to get aggregate news about which stocks have rapidly changing prices. This is a feature you should use in order to maximize your profit. There are also some software products that can assist you in scanning price moves on volume.

Once you get your scanning software, be sure to use it several times a day. The two most important times to use the software are fairly early in the morning, just after the stock market opens, and again just before it closes. These are the times when insider trading is most likely to occur. The software helps you check for significant price upswings which you can then investigate to see if they can be explained away by a newsworthy event.

Smart traders get the best of both worlds. They stay out of trouble with the law but still benefit from insider trading by paying close attention to their stock picks. Now you can do the same.

Article written by Doug Newberry