Legal Insider Trading Signals
Insider trading gets a bad reputation — most people associate it with illegal activity. But legal insider trading — the disclosure of trades by company directors, executives, and major shareholders — is one of the most powerful signals available to retail investors.
How It Works Legally
In the US, insiders must file a Form 4 with the SEC within 2 business days of any trade. In the UK, directors must disclose trades through the LSE Regulatory News Service (RNS). These filings are fully public.
Cluster Buys: The Strongest Signal
A single insider purchase can be explained by personal finance reasons — rebalancing, confidence in the company, or simply deploying savings. But when 2+ insiders buy within 48 hours, the "personal finance" explanation disappears.
Academic research by Seyhun (1986) and Lakonishok & Lee (2001) found cluster buys predict 12-month outperformance roughly 68% of the time. This is the primary signal DipBuster detects and surfaces.
- CEO or CFO buying (vs. minor director)
- Large relative to salary (e.g. buying 1 year's salary worth of shares)
- Near a 52-week low (not after a big run)
- Cluster buy (2+ insiders in 48 hours)
- First purchase in 2+ years (not habitual buying)