Some company insiders make some absolutely boneheaded decisions.

But for the most part, insiders aren’t stupid.

The truth is… they act with knowledge we don’t have.

And that’s why it pays to follow them.

Tracking insider activity is one of the most powerful investing strategies I’ve encountered in my 30-plus years of trading experience. But there are certain things I look for before I follow the insiders.

The first thing I look for before making an insider play is cluster buying.

Cluster buying occurs when three or more insiders buy their own company’s shares.

And these can’t just be tiny, meaningless purchases… They have to be substantial in size.

The reason we often see insiders buying in clusters is simple: They all think their stock is cheap. And they think it’s cheap because they have inside information that could lead to a boost.

This inside information could relate to a merger or acquisition… a big contract coming down the pike… or other news that could improve the prospects for the business.

Here’s an example…

A Common Reason for Insider Buying

Insiders know ahead of time if their company is going to buy back shares.

Armed with that knowledge, they often try to catch a wave of momentum by buying the stock ahead of the announcement. And as long as they report their purchases to the SEC, it’s perfectly legal!

I recently noticed this exact phenomenon on a specific stock.

Three weeks ago, I recommended an insider play in The War Room. It was a true cluster buy – six insiders were buying at various prices on the open market.

These six insiders included the CFO, the CEO and a director.

So we bought in, using a method in which we buy one tranche (or partial position) and then buy a second tranche at a lower price.

We do this because many insider trades start out strong before pulling back in the short term – especially if the shares are down initially for a reason like bad earnings.

We bought both of our tranches within two weeks of my initial recommendation.

Then we got our catalyst this Tuesday, when the company announced that it will buy back almost 14% of the outstanding shares.

The stock popped 15% on that news.

The insiders rejoiced because they had gotten in before the announcement… and we rejoiced right along with them!

YOUR ACTION PLAN

Insider buying is my favorite strategy, and this type of legal money movement is one of the main signals I follow in The War Room every single day. Last week I closed a 25.53% return on premium on Chewy (NYSE: CHWY) in just 13 trading days.

If you join The War Room today, I guarantee you’ll receive 252 winning trades in your first 12 months as a member – click here to join us and create your own inside track to profits.