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Mechanical Investment – Removing Fear from Trading

By July 21, 2015November 9th, 2023Uncategorized

Gary Stone advocates and personally uses, a mechanical investment approach. You will often hear him talk about it in interviews, or write about it on social media.

What is mechanical investing?

In Gary’s Why I’m a mechanical trader post he defined mechanical investing as:

‘…using a distinct set of well defined rules which instruct the trader when to execute and how much to place in each trade. It is a method of trading that employs unambiguous entry/ exit criteria and strict risk and money management rules.

In layman’s terms, the mechanical investment is a technique used by many which follows a set of programmed rules to identify the best times to buy and sell stocks. It may sound like a method exclusive to the domain of professional investors, but is also used by savvy DIY investors.

In managing your own investment portfolio, it’s important to keep your goals in mind and to develop a strategy to achieve them. In Why I’m a mechanical trader Gary outlines 10 benefits to using the mechanical investing approach.

The key element of mechanical investing’s success is how it allows ‘…us to overcome our fears, frustration, subjectivity and second-guessing mindset which inevitably is destructive to every trader and investor.’ In taking a mechanical approach to investing, investors time the market with the use of historical data and investing systems.

Fear and Greed in the markets – removing emotion from objective decision-making

Investing in the stock market, whilst it can be calculated and strategic, is ultimately a human behaviour. Human behaviour is unpredictable and influenced by emotions such as fear and greed. All investors are afraid of a stock falling in value and money being lost, just as how greed may delay a profitable trade for the desire to make more money.

Fear will often see investors make decisions that are short-sighted and don’t align with their investment strategy. The anticipation of danger can cause individuals to respond to market noise, rather than follow and capitalise upon greater cycles and trends. Furthermore fear sparked by commentary and news can distract investors from objective and systematic evidence-based mechanical trading.

Gary Stone identifies the importance of confidence and mental fortitude in the execution of an investment strategy. The use of mechanical systems and the employment of objective processes remove emotion from decision making to increase your chances of success. Proven mechanical signalling systems such as SPA3ETF by Share Wealth Systems are excellent methodologies for your DIY investment strategy.

Ask yourself, have you made a trading or investment decision that was motivated by emotion? How would the outcome have been altered if you used a mechanical trading system instead?

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