Mechanical Investing

DEFINITION of 'Mechanical Investing'

Buying and selling stocks according to a screen based on predetermined criteria, usually with the help of technical indicators such as relative strength or momentum. This method allows traders to enter transactions without emotion and backtest their strategies by using historical data from any time period.

BREAKING DOWN 'Mechanical Investing'

For example, one of the most common mechanical investing systems is called the Dogs of the Dow. This strategy involves buying the 10 stocks on the Dow Jones Industrial Average with the highest dividend yield at the beginning of each year. The portfolio is then adjusted each year to only include the 10 highest yielding stocks. Proponents of mechanical investing say that using this method of investing removes all emotion by allowing a computer to do the work of deciding whether investing in a certain asset is warranted.

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RELATED FAQS
  1. How can I tell if I'm an emotional investor?

    Successful investors possess the important trait of emotional stability, which means that they base their investment decisions ... Read Answer >>
  2. What are the "Dogs of the Dow"?

    The Dow Jones Industrial Average (DJIA) is an index of 30 of the most significant, mature and respected companies in the ... Read Answer >>
  3. How do I stop emotional spending?

    Emotional spending occurs when an individual spends money for the sole purpose of improving a mood. Some reasons people engage ... Read Answer >>
  4. Can you buy shares in the Dow Jones Industrial Average (DJIA)?

    Invest in the Dow Jones Industrial Average index through index funds or ETFs. Read Answer >>
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    Learn why investing in a tumultuous market can be challenging even for the most experienced investors. Avoiding these common ... Read Answer >>
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