Checking what sits behind an AI stock rating

An AI stock rating is a summary. Somebody decided which inputs go into it, how much each one counts and what the scale means. Checking a rating is the work of opening that summary back up and deciding whether you agree with those choices.

The method is the same whatever produced the number. Find out what the inputs are. Follow one of them back to the document it came from. Look at how the rating has moved and what moved it. Then write down your own read and compare. The first pass is slow. After that it takes a few minutes.

What you are not doing is deciding whether the number feels right. A rating that agrees with you is not evidence of anything.

Start with the inputs, not the number

A rating built mostly on insider filings behaves nothing like one built mostly on price momentum, and the two will disagree with each other constantly. Neither is wrong; they measure different things over different windows.

So the first question is always the same: what goes in, how much does each part count, and over what period. A good scoring page tells you this without being asked. If you have to hunt for it, or the answer is a paragraph about proprietary models and nothing else, you have learned something useful about the rating. You cannot check a number whose ingredients are secret, or tell whether it repeats an input you already watch elsewhere.

Read the methodology once, properly, rather than glancing at it. Most scoring systems are less exotic than the marketing around them. Ours is set out in plain terms in how the InsiderPulse score works, and the broader category is covered in AI stock pickers explained.

Trace one input back to the source document

This is the step people skip, and it is the one that actually tells you whether a rating is grounded.

Pick a single claim the rating rests on and open the original. If it leans on insider buying, the source is a Form 4 filed with the SEC and published on EDGAR. The SEC requires that form to be filed before the end of the second business day following the day the transaction was executed, so the filing carries both a transaction date and a filing date. Open it and check the transaction code, the number of shares, the price and the holdings reported after the trade.

If the rating uses congressional trades, the source is a periodic transaction report. Under the STOCK Act, the House Committee on Ethics requires members to report covered transactions over US$1,000 within 30 days of being made aware of them and no later than 45 days after the transaction. That is a wide window, and it changes how much weight a fresh disclosure deserves.

If it uses institutional holdings, the source is Form 13F, which the SEC requires from managers exercising discretion over US$100 million or more in covered securities, filed within 45 days of the end of each calendar quarter. A 13F is a photograph of a position at one moment, already weeks old when you read it.

You only need to do this once per tool. Either the numbers on the screen match the documents or they do not.

Look at what moved, not where it sits

A rating sitting at a level tells you less than the same rating three days after it changed. Levels are mostly a function of how the scale was built. Movement is a function of something that happened.

So look at the change, then ask what caused it. Did a filing land? Did volume shift? Did the price move and drag the score with it? If the tool breaks the score into components, that question has an answer you can read. If it does not, you are guessing.

Be wary of a rating that moves every single day. Filings arrive in lumps, so a score weighted towards them should sit still for long stretches and then jump. A number that drifts daily is usually tracking price, which you can already see on the chart.

Check the dates on everything

Every input in a rating has two dates: when the thing happened and when you found out. Ratings tend to show you the second one.

Under the SEC's 2022 amendments to Rule 10b5-1, Form 4 now carries a checkbox showing that a transaction was made under a trading plan intended to satisfy Rule 10b5-1(c), and directors and officers face a cooling off period of the later of 90 days after adopting or modifying a plan or two business days after the company discloses its quarterly results, capped at 120 days. In plain terms, a sale that lands in your feed today may have been scheduled months ago by someone who then had no say in the timing. That checkbox is worth more than most of what surrounds it.

Know what the rating cannot see

No scoring system knows your time frame, your position size, what else you hold or what you would do if the trade went against you on day one. It does not know why an insider sold, only that they did.

The SEC's own investor alert on artificial intelligence and investment fraud makes the same point from the other direction: claims of high guaranteed returns with little or no risk are classic warning signs, and information produced by AI systems can rely on data that is inaccurate, incomplete or misleading. Treat any number that arrives with a promise attached as a marketing claim rather than a measurement. We covered the limits of the technology itself in can AI predict stocks.

Form your own read first, then compare

The habit that makes all of this worth doing is small. Before you open the rating, write one line on what you think about the asset and why. Then open it. Where the two disagree, write the reason for the disagreement.

Do that for a few weeks and you find out where the rating adds something, and where it just restates the chart back to you. That record is also the most honest way to judge a tool, because it is built from your own decisions. A trading journal habit is the easiest place to keep it.

How InsiderPulse handles this

InsiderPulse is built so a score can be opened rather than taken on trust. It scores every asset it covers from 0 to 100 using SEC Form 4 insider filings, US congressional trade disclosures, options activity, dark pool and volume data, prices and news. The score page shows the components rather than a single figure on its own, so you can see which part moved. Ask Pulsey answers questions with citations, which means you can open the filing behind an answer instead of taking it on trust. The score is a starting point for your own reading, not a pick. InsiderPulse covers US listed stocks and ETFs plus crypto, forex and commodities, and does not cover ASX shares.

InsiderPulse is a data tool. Nothing on this page is financial advice.