If you trade: you'll lose. Losing is part of the process. Jesse Livermore put it this way:

"The only way you get a real education in the market is to invest cash, track your trades, and study your mistakes."

As retail traders, we accept this, just as the poker player accepts loss in their arena, as does a surgeon. Loss is part of life itself with the ultimate loss that of life, or more superficially, that of financial ruin.

Oliver Stone in his two monumental movies Platoon in 1986 followed in 1987 by Wall Street demonstrate this emphatically. In Platoon, it's loss of life, whereas in Wall Street it's financial ruin.

We plan for loss of life by writing a will. What do we do to plan for financial ruin, or at least managing our financial risk in our trading?

I'll get to the trading aspects later, but first we need to evaluate our trading skills based on how we approach risk in our family lives. I want to do this with personal finance first because I think it's easier to relate to. I can then take those conclusions and map them into trading.

First, and foremost in trading is the ability to understand and implement risk management.

We know that we have no control over how much money we'll make from a trade, but we balance that by understanding that the thing we do have control over is our risk.

Mapping trading risk to our family life means managing our expenses. We can't control whether we'll have a job, but we can control what we spend.

And what happens when you don't control your family expenses? A better question here is: can you control your family expenses?

Because of how so many are forced to live paycheck to paycheck with $2.80 left over at the end of the month, there may very well be no expense that can be reduced other than choosing between paying the electric bill, or putting a bowl of pasta on the table for your kids.

But, I call that 'reactive risk management'; it's something you do after some event happens that gets your attention.

If that was a trade situation, would you be trying to figure out your risk management process as price rolls over and starts dropping like a stone? No. You'd have thought about your risk management before you even put the trade on!

You have to do that in your family life as well: think about your risk before the event occurs that needs risk management.

I don't care who you are, how old you are, what sort of job — or lack thereof — that you have, because if you have a proactive financial risk management plan, you can always, always save money by cutting back your expenses before you need to.

You do proactive financial risk management daily based on a monthly plan of action.

Let's keep this simple. Say you make $3,000 a month; about $17.00 an hour, and it's just you. Your biggest expense — after the mandatory taxes are pulled — is rent, then food, car, utilities and other basic stuff like internet, tv, cell phone, etc. Maybe some college loans, or old medical bills as well. Let's say that leaves you with that $2.80. Now what?

Well, if $3,000 just covers that, then that's your pull. A term called your 'runway' is how many months of pull you have in savings.

A poker player would refer to the condition of not having runway to being 'short stacked'. You can't come to the table with less money than the other players because, statistically over the long term, you're burn rate just from ante's and the times you do probe play, you'll run that stack to the wood.

How bad could it get if you lose your job, i.e. how long will it take you to find another job? Let's say under 'normal' conditions of getting laid off, it would take you 2 months to find another job. Give it 3 months. In a catastrophe like we face today, which is far from normal, it could be 6 months. Or a year....

However, by planning for the norm, we just build in a little extra so that we've got something more in there to last longer — a longer runway. Call it $3,100 per month you need. You get that extra $100 plus whatever your additional savings need to be to accumulate 3 months savings: $9,300.

How long do you want to take to achieve this size runway? How about 3 years? So, you've got to save $3,100 per year, or $260 per month to make that happen.

If you're just breaking even at $3,000 a month, then where is that $260 extra going to come from?

The issue then becomes one of risk management. You can find this money in a few ways:

• Increase the number of years to reach your goal, thus reducing that extra monthly pull.
• Get rid of the expensive car lease and buy an 8 year old beater.
• Get rid of Amazon Prime, don't order books and stuff from Amazon, and don't rent streaming movies.
• Don't serve 8 oz sirloin portions. Either reduce to 4 oz portions, switch to chicken, or do lentils.
• — okay, now you plug something in here....

So, let's say you do all of that, 3 years goes by, and not only do the wheels come off the wagon, but the wagon is wrecked. What's your risk management disaster recovery plan?

The gangsters portrayed in the Francis Ford Coppola classic 1972 movie, The Godfather called it "going to the mattresses.". It meant getting an apartment hideout and some mattresses for them to sleep on while they hid out, waiting for a call to action.

That's more than just protective 'runway'; it's looking at life from the big picture of things, and not just what is right in front of your face.

It has nothing to do with paying this month's light bill, but rather having an overall view of what resources you have, and how to keep as much of those resources as possible in times of financial duress.

So, that's proactive personal risk management. How about your proactive trading risk management?

Well, you already know about that! If you're reading this, you're a trader, so you should know this.

But: Do you fully appreciate the significance of this, and how to implement it under duress?

And what if everything goes totally to shit — your fault or not? Does your trading risk management plan include disaster recovery to "go to the mattresses"?

As a trader you have to project out that risk just as you do projecting out a plan for if you get laid off.

What's the trading equivalent of getting laid off? It's that probabilistic event of running 6 losers in a row — a not uncommon situation even for a longer term trader; for a speculator running 10 trades out a day it could be a couple of months.

But what does that cost you? In the family life example, the cost is $3,000 a month. In trading it's your stop limit on whatever size you're trading.

Let's say you're trading 1 full lot at $10 per pip, and you have a set limit of 20 pips. So, if you hit 6 of those in a row your cost is $1,200.

U.S. Federal law mandates a margin of 5%. Let's say the currency pair you're trading is currently priced 1.2500. That's $125,000 of currency of which you'll need to have 5% of: $6,250.

That means that if you only have $6,250 in your account you can trade 1 full lot. But if price drops 1 pip below that, you can't make a 1 full lot trade.

So, to make a trade you need to have let's say $6,300 to keep things simple. If you get hit with those 6 losing trades in a row, $1,200, then you'd better open your account with $7,500 at a minimum. That extra $1,200 is your runway. It gets you through a 6 run loss series and leaves you just enough to make the next trade.

And if you lose on the 7th trade right after opening that account? Well, you'll just have to go reload that account with another $1,200. There's no getting around that. Unless you open that account with $10,000 instead of $7,500. After margin of $6,300 that leaves you with a $3,700 runway buffer; almost 19 losing trades of runway.

19 losing trades seems excessive. It's not. Most professional traders, hedge fund operators, etc. have had 2, 15 losing runs in their 25 to 30 year careers. Heck, I ran out 13 losers almost in a row once. In fact, when I opened my first large live account, I hit almost 6 losers in a row for a 30% account loss! At the start!

There were other factors involved in why that took 30% of my account, but the point I want to make is that I hit 6 losers in a row almost immediately after opening the account. Unfortunately for me, I had actually buffered in some of that loss in runway, and was able to continue trading, though at a reduced lot level.

I say 'unfortunately for me" that I had buffered in some runway because that was a problem, a huge problem as it turned out. That was because I had some runway I was able to keep going.

If I would have run that account to the wood instead of just a 30% hit I might have stopped trading and reevaluated my overall process. Instead, because of my technical background, I only attributed those 6 losers in a row to a probabilistically expected event. I missed the fact that those 6 losses weren't only just probabilistic losses, but that they were also in part just stupid losses.

Thus, the moral of this story is: don't start trading until you're sure you know what you're doing and can differentiate a probabilistic loss from a stupid loss, and, regardless of what type of loss it is, that you have sufficient runway to make it through.