Pioneer Power Solutions [NASDAQ: PPSI] is forming a bullish continuation pattern. While it had a slight correction yesterday, the stock still has the momentum to keep gaining. A month ago, an insider at Pioneer Power Solutions, Mazurek Nathan bought 1,000 shares at an average price of $1.40 per share after filing Form 4 with insider trading codes. These shares were to later increase in value and began trading at a value of 9% from the last closing price. Following this transaction, the executive insider’s share increased to 31,000.

Why is an Insider Transaction Important?

While you should not use insider transactions to decide to invest in a particular company, such transactions are important factors that you should also put into consideration while making that decision. Here is why they should help you make a decision, but not be the only guide to making a decision.

Any time an inside executive or officer considers buying or buys stock after a vital sell-off, it could be an indication of the faith the insider has on that company’s stock. This action means then that if the insider decides to buy that stock at new highs, then it could mean that the insider feels that the stock has not been overvalued. The opposite is also true to some extent but should be taken with a pinch of salt. When insiders are selling the company’s stock at new lows, it could mean or indicate a capitulation or surrender moment, but not necessarily a loss of faith in the company. Just note that when the insiders sell at new highs, they could be planning to “lock in a gain” or possibly “take some profit.”

In every house, there is an important kind of secret transaction codes that only a few are familiar with, but are not as restricted. In Wall Street, these insider transaction codes are used in the open market as seen in filing Form 4. Traders fill this form via these codes with P indicating purchase, and the code S denoting a sale. When done in an open-market transaction, then that means that the insider trader sold the stock deliberately and is hoping to make some gains from the same.

There are other codes like A and C but do not carry as much weight as P and S, since they are rarely tied to the insiders or in the decision that they make. Transaction code A, denotes an inside trader being forced to let go of their stock to get a particular compensation, while C is indicative of an option being converted.