There are two top traders who stand out in Japan's trading world. One is BNF, known as the god of the markets, and the other is Takashi Kotegawa. They have been long-time friends and share similar backgrounds. They have been involved in trading since university, starting with modest capital, and have now grown into traders managing billions of yen.

These two became famous overnight due to the J-COM misorder incident. That day, Takashi Kotegawa earned 600 million yen, and BNF was even more impressive. He made 2 billion yen in just 10 minutes. This incident marked a turning point that brought their skills to public attention.

What’s interesting is that, in Japan’s typically conservative and modest trading community, they chose to reveal their trading philosophies. BNF unusually disclosed his trend-following strategy, and Takashi Kotegawa shared practical, high-value trend-following principles. Since then, many traders have studied these and applied them to their own trading. These ideas are still very effective in today’s markets.

To understand BNF’s strategy, it’s essential to know his growth process from the early days. Between 2000 and 2003, the global stock markets entered a bear market due to the collapse of the internet bubble. The Japanese market was no exception, with many investors suffering significant losses and a prevailing sense of pessimism. However, even in a bear market, the market doesn’t decline unilaterally forever. Prices rebound and adjust repeatedly, creating opportunities in the process.

BNF focused on the fact that asset prices often deviate significantly from their intrinsic value. He particularly observed the deviation rate from the 25-day moving average, targeting stocks with large negative deviations. For example, if the moving average is 100 yen and the current price is 80 yen, the deviation rate is minus 20%. He bought these undervalued stocks, aiming to profit from rebounds. This approach requires courage and deep analysis.

Market conditions change, and so do strategies. In 2003, Japan’s stock market began rising due to reforms and the recovery of the global economy. BNF keenly sensed this shift and shifted to a trend-following strategy. As a result, his assets rapidly increased from 100 million yen to 8 billion yen.

BNF’s trend-following trading is characterized by holding 20 to 50 stocks simultaneously each day. He avoids concentrating on a single stock and instead diversifies to manage risk. Stocks bought during the day are held overnight, and the next morning, he quickly decides whether to take profits or cut losses, switching to new stocks swiftly. This strict cyclical operation is crucial.

He also excels at leveraging industry correlations, especially targeting lagging stocks. For example, if one of the four major steel companies starts rising, he looks at the other three that haven’t yet risen and buys lagging stocks that meet certain conditions, riding the overall industry’s upward wave.

Meanwhile, Takashi Kotegawa’s trend-following principles complement BNF’s strategy perfectly. Kotegawa believes that stocks that have been rising continuously are more likely to continue rising, and those that have been falling persistently are more likely to keep falling. This is the core of his trend-following approach.

Many people see stock rises and falls as a 50/50 game. When they see a stock rising repeatedly, they unconsciously think it will fall. But the market doesn’t maintain such balance. Stocks that perform strongly attract investors, making the strong even stronger and the weak weaker. You must accept the market’s power and not fight against it.

Kotegawa also warns against adding to positions during a decline. If a stock you bought starts falling, the best move is to admit failure and cut losses quickly. The logic of adding to losing positions is the opposite; pouring more money into failed trades only enlarges losses. Instead of obsessing over win rates, focus on overall account profitability. In markets, risk and losses are inevitable; what you should avoid is not losses themselves but letting losses drag on and grow.

Both warn against blindly trusting past rules of thumb. Markets are complex and dynamic systems, and widely known rules quickly become invalid. Truly skilled traders often emerge during major crashes or economic crises. When most people are gripped by fear and helplessness, the market experiences significant volatility. The larger the fluctuation, the more hidden opportunities there are. Calmness and quick judgment are what allow a few to shine precisely in those moments.