Learn how to read SEC Form 4 filings like a professional. Understand transaction codes, role hierarchy, cluster analysis, and the InsiderEdge scoring system.
Every SEC Form 4 filing includes a transaction code that reveals the nature of the trade. Understanding these codes is the foundation of insider signal analysis.
Insider spent their own money at market price. This is the gold standard — they believe the stock is undervalued.
Insider sold shares on the open market. Context matters — was it for taxes, diversification, or conviction?
Converting derivative securities. Often followed by an 'S' code sale. Low signal value alone.
Shares withheld by company to cover tax obligations. Not a deliberate trading decision.
Shares granted as part of compensation. Not a market signal.
Shares gifted to charity or family. Usually for tax planning, not conviction.
💡 Pro Tip
Focus almost exclusively on P-code (open-market purchases). These are the only transactions where insiders are putting their own capital at risk at market prices. Everything else is noise.
Not all insiders are created equal. A CEO buying $10M of stock carries far more weight than a director buying $50K. Here's the hierarchy ranked by signal strength:
Maximum information advantage. Their capital is tied to their conviction.
Deep visibility into financials, cash flows, and forward guidance.
Operational knowledge — they know if execution is on track.
Division-level insight. Still valuable, especially in tech-heavy companies.
Board-level visibility. Often follow the lead of management.
Financial conviction, but may lack operational insight. Context-dependent.
Lower signal weight. May trade for routine reasons.
Cluster analysis is the single most powerful insider signal pattern. When multiple insiders independently buy within a short time window, it dramatically increases conviction.
Useful but could be routine.
Two executives? Pay attention.
Strongest pattern. Historical win rate: 73%.
A 10b5-1 plan is a pre-arranged trading plan that allows insiders to set up automatic buy/sell orders while they are NOT in possession of material non-public information.
Most 10b5-1 sells are low signal. CEOs routinely sell shares for diversification, tax planning, or liquidity. Don't panic unless the pattern changes suddenly.
If a buy is NOT part of a 10b5-1 plan, it means the insider made a deliberate, discretionary decision to buy. This is the strongest signal type.
💡 InsiderEdge Approach
Our scoring engine automatically penalizes 10b5-1 plan transactions. Non-10b5-1 open-market purchases receive maximum points. Look for the "10b5-1" badge on each filing.
When an insider buys matters as much as who and how much. The best signals come at inflection points.
Insider buys after a 20%+ drawdown from recent highs. They're signaling the dip is overdone.
Price within 15% of 52-week low. Maximum fear in the market = maximum insider opportunity.
Buying 30-60 days before earnings. Insider may see strong numbers ahead (legal if publicly available info).
Selling near all-time highs is expected. Low signal weight unless cluster.
Buying after a 50%+ run. Less contrarian edge. Could be momentum-chasing.
The dollar amount of the transaction correlates with conviction level. Small purchases might be routine; massive purchases ($1M+) are almost always meaningful.
Our proprietary 8-factor scoring enginerates every signal from 0–100 and assigns a conviction tier. Here's how it works:
P-code purchases score max. Sales, exercises, gifts penalized.
CEO/CFO/COO at the top. Directors and 10% owners lower.
Larger transactions = stronger conviction signal.
Multiple insiders in a short window. Highest-weighted factor.
Post-dip buys and 52-week low context add points.
Bigger % increase = more skin in the game.
Historical win rate on prior insider purchases.
Bonus for strong fundamentals confirming the signal.
Apply what you've learned. Our scanner filters 10,000+ filings into actionable, scored signals.
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