How InsiderEdge™ Works
Source of Information: InsiderEdge™ utilizes data exclusively from SEC Form 4 filings. These filings are mandatory disclosures by insiders—including executives, directors, and 10% owners—outlining their stock transactions. Compliance with SEC regulations requires these filings to occur within 3 business days following the trade.
Calculating Historic Returns: InsiderEdge™ calculates weighted average returns, median returns, and win rates for insiders over timeframes of 1 month, 3 months, 6 months, and 1 year. We differentiate between trades categorized as purchases or sales. For purchase trades, the returns and win rates reflect the insider’s historical purchases. For sale trades, the returns and win rates are derived from the insider’s historical sales.
Defining Our Metrics:
- Weighted Average Returns: This figure represents the average return on all of an insider’s previous trades within the specified timeframe, adjusted for the size of each trade. A $1M trade, for example, carries a weight 10 times greater than a $100k trade.
- Median Returns: This metric shows the middle value of returns from all of the insider’s trades within the chosen timeframe, offering a view that is not influenced by the size of the trades. It helps identify if the overall returns are skewed by a small number of highly successful trades.
- Win Rates: Calculated as the proportion of profitable trades within a given timeframe. For instance, if an insider has a record of 7 profitable trades out of 10, this translates to a 70% win rate for the specified period.
- Cluster Trades: These occur when multiple insiders from the same company trade within a short time frame, usually the same week.
- % Increased/Decreased Holdings: This indicates the size of the trade in relation to the insider’s prior holdings. If an insider who previously held $1M worth of stock buys an additional $250k, that’s a 25% increase in their holdings.
Determining the ‘Best’ Trades:
InsiderEdge™ leverages an algorithm that scores each trade based on:
- Historical Trade Returns: Assigned the highest importance in the scoring process.
- Historical Win Rates: An indicator of consistency in profitable trading.
- Number of Trades: Frequent trading with sustained good returns and win rates boosts an insider’s score.
- Size of the Trade: Larger trades suggest a higher conviction and thus carry more weight in the scoring.
Disclaimer: All content provided by InsiderEdge™ is for informational purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any securities. All use of the platform is at your own risk, and users should consult a financial advisor before making any investment decisions. Investing entails risks, including possible loss of principal. In partnership with Yellowbrick Investing Inc.