Tons of websites/newsletters track insider trades, but CEOWatcher is the only one that calculates the historic returns (and other data) for every insider to know which insiders tend to buy the stock before it pops.

Data

The data is pulled directly from SEC Form 4 filings. Every insider (executive, directors, 10% owners) is required to disclose their trades via a Form 4 filing. The filings must be made within 3 business days of the transaction.

Scoring

How do I decide which trades qualify as a “top trade”?

I have an algorithm that scores each trade based on a variety of factors. I won’t share the exact factors (that’s the secret sauce), but it includes things like

• Historic trade returns for the insider

• Historic win rates (i.e. pct of previous trades with positive returns)

• Number of trades (the more trades an insider has made while having good returns and win rates, the better)

• Size of the trade (the bigger the better)

• etc

Every insider trade is given a score of 0-3. A score of 0 means the trade is not a “top” trade and is not included in my emails/spreadsheets. A score of 1-3 means the trade is considered a “top” trade. The higher the score, the better the trade.

The algorithm was created by analyzing over 120,000 insider trades over 8 years and identifying which factors are most correlated with outperformance. There are many studies that show that insider trades outperform the market on average and these top trades have historically outperformed the average insider trade.

For reference: trades with a score of 1 are in the top 33% of all insider trades, a score of 2 is in the top 20%, and a score of 3 is in the top 7%.

Timeframe

All of the analysis was done using 1-month and 3-month timeframes as those lengths of time appear to have the strongest relationship with insider trading.

This means that the trades marked as “top trades” are the trades that our program has identified as most likely to outperform over the next 1 month and next 3 months.