In a court of law, however, you do have to show causality between the act you claim harmed you and the losses you suffered. Of course, the golden rule is don’t insider trade, but you’d think that when people do, they’d at least disguise their flow.
Most notably, insider trading convictions rely on the irregularity of the reason of the trade, not necessarily the outcome itself - it’s possible to lose money while insider trading! That being said, if someone’s buying a metric ton of short term OTM call options, they probably know something that other people don’t.
People sell stock for various reasons, including rebalancing, profit taking, and limiting exposure, but it still tells you something. People buy a stock because they think it will go up. Proving causality of flows is notoriously hard and requires assumptions that defeat the purpose of ascribing a narrative - what is the proof that the stock moved due to X? It’s much easier to ascribe reasons to a trade. The system is too complex for the most part for there to be a definitive reason for every move. A common warning I give out is to not ascribe narratives to stock moves (and caution against following people who consistently explain things after the fact because of course it was due to this and this).
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