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.

  1. Capital Markets

    Capital markets are markets for buying and selling equity and ...
  2. Relative Strength

    A momentum investing technique that compares the performance ...
  3. Dogs Of The Dow

    An investing strategy that consists of buying the 10 DJIA stocks ...
  4. Momentum

    The rate of acceleration of a security's price or volume. The ...
  5. Stock Screener

    A tool that investors and traders can use to filter stocks based ...
  6. Backtesting

    The process of testing a trading strategy on prior time periods. ...
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  1. What are the "Dogs of the Dow"?

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