What is Mechanical Investing?
Buying and selling stocks according to a screen based on predetermined criteria, usually by using different technical indicators such as relative strength or momentum. This method allows traders to enter transactions without emotion and also enables the trader to backtest their strategies by using historical data from any time period. Read more for examples and further explanation including related video clips and also comments
Example 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 an investment in a certain asset is warranted.
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