Insider trading is the purchase and sale of shares held by corporate
officers, directors, and owners of 10 percent or more of a company’s
securities. Corporate directors, officers, and large shareholders—
referred to as insiders—have access to privileged information about
their companies and therefore are required by the Securities and
Exchange Commission (SEC) to report their purchases and sales of
stocks. Insiders know first-hand how their companies are doing; if
they are purchasing their company’s stocks, it is a bullish signal
for those stocks. Conversely, if insiders sell their stocks, it is a
The odd-lot theory states that investors should make investments
contrary to those made by individual investors who invest in
odd-lot orders of stocks. The odd-lot theory is concerned with the
purchase and sale of securities by small investors. An odd-lot
trade consists of fewer than 100 shares and is generally placed by
individual investors who are considered to be unsophisticated.
When “odd-lotters” are purchasing stocks, it is a sign to sell stocks.
Similarly, when “odd-lotters” are selling stocks, you should buy
stocks according to the odd-lot theory. Small investors are frequently
wrong in their investment decisions. This type of investor
is viewed as uninformed about the workings of the market.
According to the theory, these small investors typically buy stocks
at the peak of a bull market, which is when astute investors (advocates
of this theory) start selling. Similarly, after a stock market
decline, the time to buy is when small investors are bailing out of
their stock positions.
Lack of Trading Plan