Insider Transaction Signal

Entry Logic

• Exact Entry Trigger: A high-level insider (CEO, CFO) makes a significant open-market purchase of their company's stock.
• Confirmation: Multiple insiders buying, or a single insider making an unusually large purchase.
• Timeframe: Daily chart.
• Location Context: The stock is trading near a 52-week low or in a deep consolidation.
• Market Condition: Any, but signals are stronger when the broader market is bearish.

Exit Logic

• Profit Target(s): 25% or a fundamental re-rating of the stock.
• Scaling Out: Sell 1/3 at 15%, 1/3 at 25%, hold the rest for a longer-term move.
• Trailing Stop: A close below the 200-day SMA once the stock is well above it.
• Signal Failure: The stock continues to decline and breaks a key support level below the purchase price.
• Opposite Signal: The insider files to sell the shares.
• Time Expiration: 6-12 months.
• Momentum Loss: The stock fails to gain traction after 1-2 months.

Stop Loss Structure

• Hard Stop: 10% below the insider's purchase price.
• Soft Stop: A fundamental change in the company's outlook.
• Maximum Dollar Loss: $1000 per trade.
• Maximum Percent Loss: 10% of the trade value.
• Structural Stop: Below the swing low prior to the insider purchase.

Risk Management Framework

• Risk Per Trade: 0.5% - 1% of the account.
• Maximum Daily Loss: Not applicable for this strategy.
• Maximum Weekly Loss: Not applicable for this strategy.
• Maximum Drawdown: 15% of the account.
• R:R Requirement: Minimum 2.5:1.

Position Sizing Model

• Sizing Approach: Fixed dollar amount.
• Volatility Adjustment: Standard sizing, as this is a longer-term strategy.
• Conviction Sizing: Larger size for CEO/CFO buys versus other insiders.
• Scaling In: Consider adding to the position if more insiders buy.
• Scaling Out: As per exit logic.

Trade Filtering

• Market Conditions to Avoid: None, but be aware of overall market risk.
• Specific Setups: Focus on 'informative' buys, not automatic buys related to compensation.
• Instrument Requirements: Stocks with a clean balance sheet.
• Time Restrictions: Enter within 3 days of the Form 4 filing.
• Chop/News Avoidance: Understand the context of the purchase.

Context Framework

• Trend Direction: Usually bearish or sideways, the signal is a potential trend change.
• VWAP Relationship: Likely below the yearly VWAP.
• MA Relationship: Likely below the 50 and 200-day SMAs.
• Range Location: In the lower part of a long-term range.
• Higher TF Alignment: Not required, as this is often a contrarian signal.

Trade Management Rules

• Breakeven: Not a primary concern for this strategy.
• Scale Out: At pre-defined targets.
• Add Size: If the thesis strengthens (e.g., more insider buys).
• Fast vs Slow Moves: This is a slow-moving strategy; patience is required.

Time Rules

• Optimal Window: Within 3 days of the filing.
• Times to Avoid: After the stock has already run up significantly.
• Session Notes: Not session-dependent.

Setup Classification

• A+ Criteria: CEO or CFO makes a large, personal-capital purchase in a beaten-down stock.
• A Criteria: Multiple insiders are buying.
• B Criteria: A single, smaller insider buy.
• C Criteria: Option-related purchases or very small buys.

Market Selection Criteria

• Instruments: Common stocks.
• Volume/Liquidity: Minimum 250,000 shares average daily volume.
• Volatility: Any.

Statistical Edge Metrics

• Expected Win Rate: 60-70% (over a 6-12 month horizon).
• Average Win Size: 30-50%.
• Average Loss Size: 10-15%.
• Profit Factor: 3.0+.
• Expectancy: Highly positive.

Failure Conditions

• Market Conditions: A severe bear market can overwhelm even strong insider signals.
• Specific Scenarios: The insider is wrong, or the purchase was for reasons other than undervaluation.

Psychological Rules

• Mental Discipline: This is a conviction trade. You must have the patience to hold for months.

Advanced Components

• Market Regime Detection: Not critical, but helps with risk management.
• Filters: Filter for buys that increase the insider's holdings by a significant percentage (>10%).
• Correlation: Not a major factor.
• MTF Alignment: Not applicable.

Location

• Where Strongest: In undervalued, out-of-favor stocks.
• Where Weakest: In high-momentum, popular stocks where the signal is less meaningful.