MadisonBoats--I don't set the hook exasctly the way you describe; instead I set with both the hand controlling line and by lifting the rod tip. That being said, the process you describe has special merits beyond being an integral part of good line management. In many small stream situations where it is virtually impossible to "jerk" line setting is basically the only way to go.
Also, and others have alluded to this, BigMax you can rest assured you can't set the hook too rapidly (in Smokies streams) once the fish has hit the dry fly. However, there will be times when a trout just follows, almost takes, or comes and goes only to come again. Holding back in such situations comes with experience.
Finally, smaller specks and rainbows often miss the fly, and larger ones may on occasions just flip or slap at it. Specks are especially inefficient, and sometimes they will come back for a second, third, or even fourth bite of the cherry. However, if a brown of much size takes a fly, it virtually never misses. By the time a brown has reached double digits in length, it is very efficient indeed.