- Bargaineering - http://www.bargaineering.com/articles -

Trade With Your Head, Not Your Heart

By heart I mean emotions. I personally think you should invest in companies whose goals you believe in… with respect to that, you should trade with your heart.

If you haven’t been paying attention to the markets these last two days, perk up, it’s a perfect example of how you should invest with your head and not with your heart. Yesterday, the Fed bumped up interest rates another quarter point, as expected, and gave guidance that suggested further rate hikes were in our future. What was supposed to be routine, suddenly went sour. According to Google Finance’s historical records, at 2:16pm, the Dow Jones Industrial Average was at 11,267.08. (the meeting is at 2pm) By 2:32pm, it was at 11,193.04, or a loss of 74.04 in sixteen minutes. The Dow closed at 11,156.86 – a drop of 110.22 from the 2:16pm value.

None of the fundamentals concerning the companies in the Dow changed. The prospects of our economy didn’t really change either, still humming along even with the Fed fiddling with rates to control inflation. There wasn’t a real obvious reason for the fall other than a gut-reaction by the markets that, if you looked today, were a little excessive. As of this writing, the Dow is up 77.28 to 11,228.42 which is about where it opened yesterday. Kirk [3] has declared the market in full lift-off mode and that those who sold yesterday found themselves on the business end of Mr. Market this morning.

The moral of this story? Don’t trade with your heart. Don’t buy into the hype and don’t sell on your fears. Keep your head screwed on straight and let the numbers do the talking.