Regardless of your political affiliation, as a trader you need to compartmentalize your emotions and trade based on your system and the movement of the market. The topic that is on everyone's mind as we start this new week and new month is the upcoming election. There are many different possible outcomes, all of which are possible despite what some of the pundits are saying on TV. And the most important race out there for the markets is not Obama vs. McCain, but something much more important to the economy.

Before we look forward, lets take a quick look back. The month of October was the worst month in 21 years for U.S. stocks, despite last week's rally of 11.3% for the Dow and 10.5% for the S&P 500. As any citizen tries to wrap their head around all that has happened in the last 6 weeks, it is flat out frustrating. We all are involved with the market in some way, shape, or form, whether we are active traders or simply have retirement accounts with money in mutual funds and pensions. The bottom line is that this has an effect on us all.

And we are all responsible for getting here to some degree as well. As we know by now, the heart attack that occured in the markets during October was caused by an over zealous credit system across all areas of the country and the economy. People were buying houses, cars, and everyday goods on credit that they knew might be beyond their means. Lenders allowed this to happen because it was very profitable for them. Wall St. then sold these loans as packaged debt securities (paper). The list of poor decisions has become longer than we ever could've imagined.

Where to now? The markets have likely priced in an Obama presidency with the fears of higher regulation and higher taxes causing added selling pressure last month. The bigger market question now as it relates to the election is how many seats the Democrats will hold in the senate. If the Democrats can take hold of 60 or more seats in the senate as some polls suggest, that will create a supermajority in the senate whereby the Republicans will be unable to filibuster any bills.

This causes a concern for traders around the world as the U.S. governmental system was developed on the basis of checks and balances. If you think about how major U.S. banks went down at record pace over the past year, it all happened because a lack of trust. The people and entities that were doing business with a suspect bank didn't want to work with them any more because they were afraid of the default risk.

When traders look to a potential future Washington D.C. where one side runs rampant, that is scary to people. As we saw on September 29th when the House failed to pass the "bailout package" or TARP as it has become known, the market sold off 774 points. A volatile market mixed with political disappointment and distrust is a recipe for disaster.

We saw the effects of regulation that was too loose as the executives running these banks made poor decisions. The resulting actions will likely be over-regulation, forcing people and businesses across the globe to tighten their belts just to survive. There will, however, be stocks that will work for a while in this climate, such as healthcare companies when a version of universal healthcare is established.

Keep all of these fundamental factors in mind as we head into a new governmental administration. You can't allow your individual political bias to cloud your trading and investing decisions, regardless of your political affiliation. The smart money on the street follows this approach, and it has been evident lately as the trading volumes have been VERY low during the last week or so. There is a boatload of money sitting on the sidelines, ready to jump into the game. This money is going to be put to work starting on Wednesday, and you need to watch the senate results to determine how you need to react.

Price Headley is the founder and chief analyst of BigTrends.com.