With the markets and exchange traded funds (ETFs) up so sharply one day, but down the next, we’re wondering what role our emotions have in these movements.

Along with true government action and a stronger fiscal policy, the main driver of the economy and markets is actually you, your emotions and the sentiment toward the stock market. Dr. George Akerlof of the University of California at Berkeley, and Dr. Robert Shiller of Yale published a new book, Animal Spirits , which explores how human psychology drives the economy.

Bob Moon for Marketplace reports that the most damaging and simple problem is that people think we are in a bad economy. Akerlof explains that what everybody needs and wants is a job, what businesses and consumers need is credit. And so the government should fulfill those two roles. Shiller remarks that the kind of thing that the Obama administration is doing and Congress is doing is on the right track – it’s just not big enough yet.

So your role in the bigger picture? Simply take your emotions and the psychology out of your investment decisions. Luckily, doing this is easy.

The best way to do this is to have a strategy or a plan, and stick with it. By staying on top of market trends and watching ETFs that move above their 200 day-moving-averages, you are already taking the emotion out of it. Also, be aware if your tendency toward or away from risk and allocate your portfolio to match your risk tolerance. This will help take more emotion and guesswork out of your decisions.

Analyze ETFs and see what areas are moving above their trend lines by using our ETF Analyzer. Also learn about how other ETF Trends readers invest and what they’re thinking by visiting our forums.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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