Learn to spot winning trades – accumulation by smart money and insider trading
Alex Brown
Jun. 23, 2007

Many investors wonder what the best method of spotting winning trades. Believe it or not, all technical models are good for some time, after that they fail. Believe it or not, the only way to spot winning trades are to follow who knows what is happening. Trading based on insider information is illegal. But without knowing the exact information you can get clues that something positive is cooking.

Smart money is big money. They control the market. Securities Exchange Commission watches these smart money managers closely but still they know it all. If you have big accounts (in millions of dollars), you can ask them to manage it for you. They are seldom wrong because they get the information. There is nothing more successful that trading with certainty.

If you are a small investor, you can just follow these smart money people. You will still gain enormously because you do not pay them their hefty fees. Here are some tricks that will enable you to follow the smart money.

You need to track two things. First is a stock that goes up with expanding volume and goes down with contracting volume. After spotting such stocks, look at the insider buy and sell records for the last four months. Try to plot these insider trades and see if insider buying is accelerating. When insiders aggressively buy, the stock normally takes some time to take off. But at this stage you get ready. Now, look for a market correction or something that pushes the stock down sharply to test a low. The low will be tested with minimal volume. The volatility of the stock will also be low. Most likely you got a winner.

If you know computer programming you can create the accumulation model based on the above. Many people use statistical and quantitative models to fine-tune this method.

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