Who’s on your team?

So, I write and talk a lot about the tasks of trading, finding an edge, maintaining that edge, and having the discipline to apply it. Probably and statistics are important tools, and I try to help my readers work toward intuition. I spend a lot of time debunking some of the myths and misconceptions out there, and I always encourage people to think deeply. All of this is important, but, I realized as I was thinking this weekend, there’s probably something important you’ve never considered doing. Have you ever thought about working with a partner, as a team?

teamworkThis is not to say that you can’t be successful on your own–trading is a solitary pursuit, and there are a number of traders who do very well working on their own, in isolation. For many traders, isolation does become a problem, and perhaps this is why we see so many gravitate to social media. I’ve known many traders, though, who work with partners or in teams, and I’d like to share a few keys to making this work.

1. You must share responsibility and P&L. There are a lot of acquaintances and friendships in which traders share ideas, review each other’s trades, commiserate when appropriate, and generally provide support and encouragement. These relationships can range from very casual (think chatroom) to deeply personal, but this is not what we’re talking about today. If you work with another trader in a partnership, I think the important point is that P&L must be shared between the two of you.

Why does this matter? Simple–because your decisions now have an impact on another human being. That impulse trade/revenge trade you were about to do? Well, you know you’re going to get hurt doing it, but now you’re going to hurt someone else too, so you’ll think twice about doing it. Going to hold that trade past your stop? It will cost your partner, as well, and you’re gonna have some ‘splaining to do.

It’s partially having someone else looking over your shoulder, and this is now a deeply interested party. You are trading his/her money as well and every decision affects both of you. Even more than that, though, is the sense of responsibility. It’s a lot easier to be disciplined, to avoid doing something stupid, if you’re doing it for someone else.

2. Pick your partner wisely. This almost goes without saying. You are giving this person access to a good chunk of your money and the potential to do great financial harm to you. Think carefully and think twice before you enter into a relationship like this.

3. Write it down. A clear, written partnership agreement and trading plan are very important. There can be no confusion or hoping something will work out. No, you work it out–both of you, take responsibility for the arrangement, draft an agreement, and work through the details. Treat this document with utter respect (as you should this working relationship), and modify it as needed.

4. Decide how you will work together. This probably should be another post itself, but let me share a few ideas here:

  • Trade complete independently, but pool P&L. Your decisions still effect someone else, so, even if you’re trading different markets, styles, and timeframes, there can be great benefit to this type of relationship. There may be issues and inequalities to work through, but that’s why you paid attention to points #2 and #3, right?
  • Filter each other’s trade candidates. Imagine that you are swing traders, and you each come up with about a dozen trading candidates. Share those lists, and pick out the trades you want the other person to do. This can work with someone who trades as you do, or differently.
  • Pick trading candidates collaboratively. Similar to the one above, but you go through your lists and come up with one list you will share together.
  • Separate analysis and execution. One of you decides what you trade, the other actually executes. There’s a reason that these functions are separated in many organizations and institutions.
  • Separate the task of entry and exit. Ah… this one is definitely worth a post of its own, and I’ll try do that tomorrow. I worked with a partner for a few years who had a very different style. He had some basic technical/market structure knowledge, but his approach was primarily fundamental. My approach was primarily technical. We had clear “risk budgets”, and we each entered trades and then handed them off to the other to manage. This might seem insane, but it almost magically banishes many of the emotions and conflicts of trading. More on that, very soon.

So, think about this. For many of my readers, this may not be practical now, but it may be something you want to consider in the future. I realize this is a challenging idea, no matter where you are in the new/developing/established trader spectrum: a developing trader might have issues tying himself to another developing trader, while an established trader is likely to be (correctly) hesitant to change anything. Quite likely, you think this is a crazy blog post and a crazier idea, but it’s a crazy idea that deserves some consideration. Think about it–who’s on your team?


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has 4 Comments

  1. zaqimon .

    I was thinking maybe it is possible to design an Exit only system to take care of all my Entries. This Exit only system could be as simple as stop/trail-stop orders or could be really complicated. For instance. How this Exit only system will handle news events or fast market conditions? Can this Exit only system balance risk for not holding too many highly correlated positions? …

    1. Adam Grimes

      yeah many possibilities here… I’ve probably seen more people do “entry only” systems and then the human manages the exit. This might be called a “grey box” system and it is not uncommon. Good idea!

  2. I always had an (unfulfilled) tendency towards finding one or a few people to confer with during trading hours, especially now that audio chat is as common as text chat was 20 years ago it seems it could be quite efficient and pleasant.

    I had thought about validating each other’s calls, maybe even separating research from execution, but your last suggestion of one person exiting the other’s entries is quite novel. This might be going to the top of my list of things to try…

    1. Adam Grimes

      Yes. Obviously, the person has to be carefully chosen, but there are many possibilities here. Well worth your time to consider those possibilities.

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