There are two legendary figures in the Japanese trading circle, one is BNF, hailed as the god of trading, and the other is the strongest retail trader CIS. Their stories are particularly interesting because they are not only longtime friends but also have remarkably similar experiences—they both started trading in college, progressing from small capital to managing billions, and both gained fame during the famous J-COM order mistake incident. That day, CIS made 600 million yen, and BNF was even more aggressive, earning 2 billion yen in just 10 minutes, which was about 150 million RMB at the time exchange rate.

In Japan’s traditionally low-profile trading community, few people openly share their trading ideas. But BNF is different; he rarely revealed a trend-following strategy, and CIS also shared his principles of trend-following trading. These insights were later studied and organized by many traders and still hold significant practical value today.

To understand the full scope of Takao Koikawa’s investment approach, we must first start with his early contrarian investing. Between 2000 and 2003, the internet bubble burst, global stock markets entered a bear phase, and the Japanese market was no exception. Most investors lost money, and sentiment was very pessimistic. But BNF discovered an opportunity—even in a bear market, prices wouldn’t fall straight down; they fluctuated with rebounds. He believed that many assets’ prices would be seriously detached from their intrinsic value at this time.

What was his approach? It was to find stocks that were severely undervalued and buy them during rebounds after sharp declines. This required great courage and extensive research. He mainly looked at the deviation rate of the 25-day moving average to select stocks. Simply put, if a stock’s 25-day moving average was 100 yen and the current price was 80 yen, the deviation rate would be -20%. When the deviation rate shows a large negative value, it indicates the price is seriously undervalued, signaling a buying opportunity. Conversely, if the stock is at 120 yen with a +20% deviation, it warns of short-term overvaluation and risk.

2003 marked a turning point. The Japanese stock market began to rise driven by reforms and global economic recovery. As the market environment changed, Takao Koikawa’s investment approach also shifted. He moved from focusing on picking cheap stocks to trend-following, resulting in his assets skyrocketing from 100 million yen to 8 billion yen.

He preferred short-term trades lasting two days, holding 20 to 50 stocks simultaneously within a single day. The advantage was risk diversification, avoiding putting all chips into one stock. He would hold stocks overnight, then decide in the morning whether to take profits or cut losses, quickly switching to new targets. He was also particularly skilled at leveraging industry linkage effects—if one of the four major steel companies rose, he would buy the others that hadn’t yet risen, riding the entire industry’s upward wave.

While CIS’s trend-following principles lack a specific methodology, they complement BNF’s strategies well. CIS believes that stocks that have been rising continuously are likely to keep rising, and those that have been falling are likely to continue falling. This is the core logic of his trading.

Most people see stock price movements as a 50-50 probability game. When a stock rises, they subconsciously think it will fall soon. But the market doesn’t operate that way; it has strong continuation tendencies. When a stock performs strongly, it attracts more investors, making the strong stronger and the weak weaker. We must accept the market’s power rather than fight against it.

This is why the idea of buying on dips should be avoided. When stocks surge, people fear buying at the high and getting trapped, so they wait for a brief decline before entering. But no one knows when that moment will come, and in a strong bull market, missing that window can mean missing the entire rally.

Contrary to trend-following, another approach is adding to losing positions. CIS believes that once a stock starts to decline after purchase, the best move is to admit failure and cut losses quickly. The logic of adding to losing positions is completely opposite—doubling down on a failed trade usually only enlarges losses.

He also emphasizes that traders should not overfocus on win rate; what matters is overall account profitability. Market risks and losses are inevitable. Our goal isn’t to avoid failure but to cut losses promptly. It’s not about never losing money but about making small losses and big gains.

CIS’s warning to all traders is not to blindly trust past rules of thumb. The market is a complex dynamic system; once a rule is widely circulated, it often becomes ineffective quickly. Trading requires unique perspectives and sharp judgment. Truly excellent traders are often born during major stock crashes, economic crises, or market turning points. When most people panic and emotions run extreme, the market experiences huge volatility. The greater the volatility, the more hidden opportunities there are. This is the best time for those who can stay calm and act decisively to stand out.