Mechanical Investing

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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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Capital Markets

    Markets for buying and selling equity and debt instruments. . ...
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  3. Dogs Of The Dow

    An investing strategy that consists of buying the 10 DJIA stocks ...
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    The rate of acceleration of a security's price or volume. The ...
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    The process of testing a trading strategy on prior time periods. ...
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RELATED FAQS
  1. 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 ...
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