Scanner Manual (Form 4 Insider Buying)
Insider Buying: What to Know.
A Form 4 purchase is one of the clearer clues on the Predictive Intelligence list. It is also one of the easiest to misread.
Written alongside the software, which is still being built and tested, so details may be refined before launch.
01The Short Version
Treat It as a Reason to Look, Not a Reason to Buy
When an insider buys shares on the open market with their own money, it can be a sign they expect the stock to do well. But a Form 4 only tells you that shares changed hands. It doesn't tell you why, and sometimes the reason is not bullish at all. The software finds the filing. Working out what it means is your job, and the slide-out panel is there to help you do it.
02What a Form 4 Is
Company officers, directors and anyone who owns more than 10% of a company's shares have to report their trades in the company's stock to the SEC on a Form 4. It is due within two business days of the trade. The software reads each new Form 4 and looks for a purchase of at least $10,000. Grants, option exercises, tax withholding and other routine paperwork are filtered out.
Foreign companies that file a Form 6-K instead of the usual US reports generally don't have to file Form 4s at all. So the absence of a Form 4 on one of those names doesn't mean nobody is buying.
03Why a Buy Is Not Always Bullish
On a Form 4, an open-market purchase carries the code “P”. The same code can also appear when an insider buys shares in the company's own offering. That is a very different thing from picking shares up on the open market because they believe in the business.
Small companies raise money constantly, usually by issuing new shares, often with warrants attached. Directors and officers sometimes take part in those deals. If they do, the Form 4 shows up looking like a purchase, but what has actually happened is this:
- The company is selling new shares. That is dilution. Every existing share becomes a smaller slice of the company, and the price often comes under pressure.
- The insider may be supporting the raise. Management buying into the deal can help it get done. That is not the same as management expecting a rally.
- The price may be set by the deal. If the shares were bought at a discount, or came with warrants, the insider's reasons and risks are not yours.
- The bad news may already be out. A raise is often announced the same day or just before, and the stock may already have moved on it.
So an insider purchase can be bullish, neutral or the other side of a dilution story. The filing alone can't tell you which. Looking at what the company has been filing and announcing around the same time often can.
The Question to Ask
Did they buy because they think the stock is going up, or because the company was selling shares and they were part of it? If you can't tell, you don't have the full picture yet.
04Read the Context
When a ticker is flagged for insider buying, click it and open the slide-out panel. For these names it shows the details that help you judge the buy:
- Who bought. A CEO, CFO or director buying with their own money means more than a passive holder topping up. The role is shown so you can see who is behind the trade.
- How big it was compared with the company. A purchase of $10,000 in a company worth $200 million is a gesture. The same amount in a company worth $5 million, or a much larger one, is a real position. The panel shows the size of the buy against the size of the company.
- How much they now hold. The change in their holding tells you whether this was a small top-up or a big new stake.
- When the trade happened. This is the trade date, not the date the scanner picked it up. Those can be different days.
- Whether it was one buy or several. More than one purchase, or more than one insider buying, is usually a stronger sign than a single trade.
- Where the stock is listed. The panel shows the exchange, so you know if it is on Nasdaq or NYSE American or trades over the counter.
Then look outside the panel. Check the News Feed for anything recent, and look at the chart to see where the stock is now compared with the price the insider paid.
05Timing: The Filing Is Never Live
The law gives insiders up to two business days after a trade to report it, and many file near the end of that window. By the time the Form 4 reaches the scanner, the purchase could be a day or two old. Anything the insider knew or expected has had time to play out, and the price may have moved already.
That is why it is best read as positioning, not a trigger. Ask yourself where the stock was when they bought, where it is now, and whether the chart still gives you a reason to be interested. A buy that is already well behind the price is a different thing from one the market hasn't reacted to yet.
06Over-the-Counter Stocks
Some flagged names are quoted over the counter (OTC) and not on a national exchange. The software still shows them, because an insider buying is still worth knowing about, but the panel labels them so you can see it straight away.
Not every broker lets you trade OTC stocks. Some don't offer them at all, and others charge for access. If you can't find the ticker in your own account, this is the first thing to check. OTC stocks are also usually thinner and wider-spread than exchange-listed ones, which makes them harder to get in and out of.
07Before You Decide
- Open the slide-out panel.Check who bought, how big it was compared with the company, and when it happened.
- Look for a raise.Check the News Feed and recent filings for an offering, a placement or a warrant deal around the same time.
- Check the timing.Is the purchase a day or two old? Where is the stock now compared with where they bought?
- Check you can trade it.If it is OTC, make sure your broker offers it.
- Then use the chart.Entry, exit and risk are still yours to decide. A Form 4 on its own isn't enough to base a trade on.
A Tool, Not a Promise
Insider buying is one clue among many. It is not advice, a signal or a promise that any stock will move, and insiders are wrong often. Trading small, low-float stocks carries a high risk of loss. Please read the full Disclaimer.