Key Lesson: A Signal Without Quality Filter is a Trap

The most important insight about insider strategies is counterintuitive: the mere existence of an insider purchase guarantees no advantage. It depends on WHICH purchases you include and WHICH you exclude. The difference between a naive and a quality approach is vast.

In a full market cycle (2021–2026, a fair window across both bull and bear phases), the naive approach of "buy every insider buy across all capitalizations" resulted in a loss of −95 percentage points against SPY. This is a disaster — and the main culprit is the micro-cap trap: in the smallest companies, one purchase distorts the picture, liquidity is fragmented, and survivorship and noise dominate.

On the other hand, a quality conviction filter — market capitalization of at least $5 billion OR a genuine cluster with a CEO purchase — outperformed SPY by approximately +61 percentage points in the same period. The same raw data source, opposite result. A quality filter is the whole game.

Anatomy of a Quality Filter

A quality filter excludes everything that generates noise:

Only P-code — no grants, options, or gifts disguised as purchases.
Size threshold — exclusion of micro-caps where one purchase skews statistics, or a requirement for a genuine cluster + CEO purchase as a size substitute.
Hierarchy — CEO/CFO weigh more.
Purity — no concurrent insider sales (Sell Contamination).
Price proximity — purchase near or below the current price, not after a meteoric rise.

The filter does not promise that every position will profit. It promises that the distribution of returns shifts towards where conviction historically has an edge over the base of pure sales.

Construction of HIGH and ELITE

QMA works with layered levels of conviction, built on the ICS score:

HIGH conviction (strong ICS) achieved in backtesting (bull window 2024–2026, overlapping snapshots, proxy market capitalization) an average of +15.5% over 90 days with a success rate of 61%. The base with pure insider sales only +3.69%. The advantage is therefore the spread — a difference of roughly +12 bp against pure sales, not the absolute number itself.

ELITE is a narrower construction: HIGH conviction AND QMA composite score ≥ 60. That is, insider conviction independently confirmed by a strong fundamental-technical platform rating. ELITE achieved an average of +30.6% with a success rate of 70%.

Important caveat: the ELITE sample is small (n = 23), so it is an exploratory result, not a statistically robust certainty. The number +30.6% should be taken as a hypothesis worth monitoring, not as a promise. That is why QMA conducts live forward tracking of ELITE and HIGH conviction picks — to verify the hypothesis in real-time outside of backtesting.

Confluence as a Confirmation Layer

Above conviction, additional smart money traces can be layered: congress (STOCK Act), dark pool (FINRA), unusual options activity, and 13F institutional positions. In backtesting, congressional overlap increased success by about +7 percentage points.

The key is to correctly understand the role: confluence is a confirmation tilt, not a standalone advantage. Alpha still stems from the conviction and quality filter. Confluence helps decide between two similarly strong signals, but it does not replace conviction on its own. Layering multiple weak signals on a poor foundation does not create a strong strategy.

Thinking About Risk and Position Size

When constructing a framework around insider conviction, at the level of thinking (not as a directive), these principles are often relevant:

Asymmetry of quantity and quality — fewer positions with high ICS historically outperform many positions with low ICS. Concentration on conviction is itself a risk filter.
Diversification across clusters and sectors — even quality signals fail individually; dispersion dampens the idiosyncratic risk of a single name.
Horizon matching the signal — backtests work with a 90-day window; insider conviction is a medium-term, not intraday signal.
Company size as a risk threshold — capitalization threshold is not just a yield filter, but also liquidity and robustness.

These are considerations for method construction, not directives for action. How large a position someone holds is an individual decision beyond the scope of this text.

Honest Statistical Caveats

To prevent numbers from being misleading, they must be read in context:

The backtest 2024–2026 took place in a bull market — results may differ in another regime.
Snapshots overlap, which overstates consistency.
Market capitalization is a proxy, not an exact historical reconstruction.
ELITE has n = 23 — exploratory, not robust.
The full cycle 2021–2026 showed how easily a naive approach loses −95 bp — the advantage exists only with a quality filter.

Therefore, QMA displays a live panel Win Rate — Backtesting ICS Signals and forward tracking: so users can see how the historical hypothesis behaves further.

Summary

Quality beats quantity: naive all-cap approach lost −95 bp vs. SPY, quality filter outperformed the index by ~+61 bp.
Quality filter = only P-code + size threshold (or genuine cluster + CEO) + hierarchy + purity + price proximity.
HIGH conviction: +15.5% / WR 61% over 90 days; the advantage is the spread against the pure sales base (+3.69%).
ELITE (HIGH + composite ≥ 60): +30.6% / WR 70%, but n = 23 = exploratory.
Confluence (congress, dark pool, options, 13F) is confirmation (~+7 bp from congress), not standalone alpha.
ICS + live forward tracking serve for ongoing verification, not blind trust in backtesting.

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Past performance is not indicative of future results. This text is educational and analytical — it is not an investment recommendation.

🎯Insider Conviction as a Strategy: Why Quality Beats Quantity

Key Lesson: A Signal Without Quality Filter is a Trap

Anatomy of a Quality Filter

Construction of HIGH and ELITE

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Confluence as a Confirmation Layer

Thinking About Risk and Position Size

Honest Statistical Caveats

Summary