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Note: As with other sorting algorithms, reading Knuth book is extremely beneficial and doing exercises from it even more so.

Among simple sort algorithms insertion sort is the best (uses the less number of comparisons then Bubble sort and selection sort). It is the most efficient sorting algorithm for small N (say N<25). The algorithms displays strong inner loop locality and that means that most operands will be cached on modern computers. That's why it is sometimes used as a final stage in complex sorting algorithm when the subsequence to be sorted shrinks to a certain number of elements (for example, in Quicksort it is typically used when the length of the segment drops to low teens).
For large N it is excruciatingly slow unless the array to be sorted is almost in the right sorting order (which is more common that any of us think: resorting almost sorted area is favorite pasture of corporate dwellers ;). Those, so called "nearly sorted" arrays and are very important practical cases that are often ignored in textbooks devoted to sorting algorithms.
For example, sometimes sorting is used (very inefficiently) for insertion of new elements: elements first are written to the end of array and then the whole array is sorted. Yes, this is a very inefficient merge algorithms, but nevertheless it represents a common practice, especially in scripts. So Unix sort utility should be able to deal with this situation efficiently.
In case the array is already sorted insertion sort performs exactly N comparison before stopping. You can't beat that performance. It does not work well for reversely sorted arrays and it does not takes into account existence of large sorted subsequences in the initial array (see Natural Merge Sort). In other words it is a not completely dumb sort algorithm that does not distinguish and thus can't take advantage of various input data (for example simple selection is close to dumb sorting algorithms, the same is true about quicksort), but some variants of mergesort algorithm are more intelligent. You can see how it slows down on large data set from this demo
Another advantage of insertion sort is that it is very easy to explain and corresponds to an intuitive way people sort various sequences, for example, playing cards. We will assume that we are sorting an array in the ascending order. Key ideas:
It is an algorithms that many people intuitively use for sorting cards and it is very easy to illustrate on the deck of cards. Here is an example (sorted zone is in blue, unsorted is in red):
5  3 1 7 0 > 3 5  1 7 9 > 1 3 5  7 9 > 1 3 5 7  9 > 1 3 5 7 9
See animation to get better idea of the details.
Since multiple keys with the same value are placed in the sorted array in the same order that they appear in the input array, insertion sort is stable.
If input data contains already sorted fragments insertion sort works slightly faster, but unless the sorted fragment is found of the very beginning of the data set, it moves its elements up one by one.
If the input data are sorted in the opposite direction, insertion soft can't take advantage of this.
Out of three elementary sort algorithms (bublesort, selection and insertion sort algorithms), insertion sort uses fewer comparisons, so it might be faster when comparisons are expensive, for example for sorting long similar strings.
C implementation usually contains two nested loops:
Here is sample nonoptimal insertion sort implementation that contains the flaws that I mentioned:
void insertionSort(int a[], int array_size) { int i, j, current; for (i=1; i < array_size; i++) { current = a[i]; j = i; # index of the end of sorted region while ((j > 0) && (a[j1] > current)) { a[j] = a[j1]; j = j  1; } a[j] = current; } }
Here is a slightly better implementation that optimized finding of already sorted subsequences. I prepared it for my algorithms class many years ago (note that the author is no Knuth and algorithms is somewhat skewed to use available in C control structures; this is not how this algorithm should be programmed in assembler):
/* insert sort */
/* Nikolai Bezroukov */
#include <stdio.h>
#include <stdlib.h>
typedef int itemtype; // type of item to be sorted
void insertSort(
itemtype *a, // array to be sorted
int n // size of the array; note that (n1) is the upper index of the array
)
{
itemtype t;
int i, j;
/* Outer "boundary definition" loop */
for (i = 1; i < n; i++) {
if ( a[i1]<=a[i] ) { continue;} // optimized finding of already sorted subsequences
t = a[i];
/* inner loop: elements shifted down until insertion point found */
for (j = i1; j >= 0 && ( a[j] <= t ); j) {
a[j+1] = a[j];
}
/* insert */
a[j+1] = t;
}
}
There are various way to improve this algorithms, but few of them are worth the trouble:
 
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Definition: Sort by repeatedly taking the next item and inserting it into the final data structure in its proper order with respect to items already inserted. Run time is O(n^{2}) because of moves.
Also known as linear insertion sort.
Generalization (I am a kind of ...)
sort.Specialization (... is a kind of me.)
binary insertion sort.See also gnome sort.
Note: Sorting can be done in place by moving the next item into place by repeatedly swapping it with the preceding item until it is in place  a linear search and move combined. This implementation is given in C. J. Shaw and T. N. Trimble, Algorithm 175 Shuttle Sort, CACM, 6(6):312313, June 1963.
If comparing items is very expensive, use binary search to reduce the number of comparisons needed to find where the item should be inserted, then open a space by moving all later items down one. However a binary search is likely to make this not a stable sort.
Author: PEB
Implementation
(Java). An implementation (Java) due to Sedgewick and Wayne (search for Insertion sort). Algorithms and Data Structures' explanation and code (Java and C++). Other implementations may be available through the Stony Brook Algorithm Repository, Sorting. (Scheme). (Fortran).More information
demonstration of several sort algorithms, with particular emphasis on insertion sort; more demonstrations; a animation (Java) of insertion sort.
In most cases the insertion sort is the best of the elementary sorts described in this chapter. It still executes in O(N^{2}) time, but it's about twice as fast as the bubble sort and somewhat faster than the selection sort in normal situations. It's also not too complex, although it's slightly more involved than the bubble and selection sorts. It's often used as the final stage of more sophisticated sorts, such as quicksort.
When sorting an array with insertion sort, we conceptually separate it into two parts:
 The list of elements already inserted, which is always in sorted order and is found at the beginning of the array;
 The list of elements we have yet to insert, following.
In outline, our primary function looks like this:
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Insertion sort  Wikipedia, the free encyclopedia
insertion sort (NIST)
Insertion sort (C)  LiteratePrograms Implementation is many languages with some commentaries.
Insertion Sort (ciips.ee.uwa.edu.au)
Insertion sort H.W. Lang FH Flensburg See also Sortierverfahren
Insertion Sort (nice description)
Insertion Sort (www.personal.kent.edu)
Insertion Sort simple animation
InformIT Simple Sorting in Java Insertion Sort
binary insertion sort  an optimization of the insertion sort where the proper location is found by binary search.
bender...004librarysort.ps PS.gz PS PDF Image Update Help
Insertion Sort (linux.wku.edu)
The insertion sort works just like its name suggests  it inserts each item into its proper place in the final list. The simplest implementation of this requires two list structures  the source list and the list into which sorted items are inserted. To save memory, most implementations use an inplace sort that works by moving the current item past the already sorted items and repeatedly swapping it with the preceding item until it is in place.
Like the bubble sort, the insertion sort has a complexity of O(n^{2}). Although it has the same complexity, the insertion sort is twice as efficient as the bubble sort.
Pros: Relatively simple and easy to implement.
Cons: Inefficient for large lists.
Abstract: Traditional INSERTION SORT runs in O(n²) time because each insertion takes O(n) time. When people run INSERTION SORT in the physical world, they leave gaps between items to accelerate insertions. Gaps help in computers as well. This paper shows that GAPPED INSERTION SORT has insertion times of O(log n) with high probability, yielding a total running time of O(n log n) with high probability. (Update)
Dichotomic insertion consists in using a dichotomic search to determine where to insert the new item, taking advantage of the fact the sub array is already sorted. This yield the most efficient algorithm in terms on number of comparisons, with a guaranteed bound of sum(log2 i) for i in [1..n1], or log2 (n1)!, which is strictly less than n log2 n. Unfortunately, this algorithm is not efficient in practice, because, to the opposite of Selection sort, it does on average of n*n exchanges. There are two variants, depending if we assume the array to be almost sorted (DichoSort) or random or inverted (DichoSort2).
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