In the world of Japanese market traders, there are legendary figures, aren't there? One is BNF, known as the god of the markets, and the other is Takashi Kotegawa, renowned as the strongest individual investor. In fact, the two have been long-time friends and share similar backgrounds. They both got involved in the markets since university, steadily building their capital from small amounts, eventually growing into traders managing hundreds of millions of yen.

The famous J-COM misorder incident was the catalyst that made them widely known. That day, Takashi Kotegawa earned 600 million yen, but BNF was even more incredible, making 2 billion yen in just 10 minutes. At that time, this was equivalent to about 150 million yuan at the exchange rate. In Japan’s conservative and modest investment community, traders openly sharing their strategies is extremely rare, but BNF broke the mold by revealing a trend-following strategy, and Kotegawa also shared practical and highly instructive principles of trend-following.

To understand BNF’s approach, we first need to start with his early contrarian investing. During the internet bubble burst from 2000 to 2003, global stock markets entered a bear market. Many investors suffered huge losses, and an atmosphere of despair spread. But what’s important is that even in a bear market, the market doesn’t continue to decline unilaterally. Prices rebound from lows, and new trends emerge.

BNF focused on the fact that asset prices can deviate significantly from their intrinsic value. He looked for undervalued stocks and aimed to profit from rebounds after sharp declines. His method involved observing the deviation rate of the 25-day moving average. For example, if the 25-day moving average is 100 yen and the current price is 80 yen, the deviation rate is -20%. Such a large negative deviation signals undervaluation. He would buy at this point, expecting a rebound. Conversely, if the deviation rate is +20% at 120 yen, he would interpret this as overheated and cautious of risks. He set different criteria for large-cap stocks, small-cap stocks, and industry sectors to guide his entries.

After 2003, as market conditions changed, BNF’s methods evolved. During this period, his assets rapidly increased from 100 million yen to 8 billion yen. When the market was sluggish, he bought at lows; when the market warmed up, he followed the trend. His flexibility was his strength.

BNF’s characteristic is short-term trading, holding 20 to 50 stocks simultaneously, often with a two-day holding period. He avoids concentrating on a single stock, instead diversifying to manage risk. Stocks bought during the day are held overnight, with the decision to take profits or cut losses made the next morning. Strict adherence to this rule is crucial. He also skillfully uses industry correlations, especially targeting lagging stocks. For example, if one steel industry stock starts rising, he looks at the other three that haven’t yet risen and buys those that meet his conditions, riding the overall industry upward wave.

On the other hand, Takashi Kotegawa’s trend-following principles are simple but complement BNF’s strategies well. Kotegawa believes that stocks that have been rising consecutively are more likely to continue rising, and stocks that have been falling persistently are likely to keep declining. This is the core of his trend-following approach.

Most people think of stock price movements as a 50-50 probability game. When they see a stock rising continuously, they unconsciously consider contrarian bets, expecting it to fall soon. But markets don’t maintain such balance. Instead, they exhibit strong persistence. Strong stocks attract more capital, becoming even stronger. Accepting the market’s momentum is essential.

Kotegawa emphasizes avoiding additional investments after incurring losses. If a stock you bought starts to decline, the best course of action is to admit failure and cut losses quickly. Adding to losses only enlarges them. What matters is not the win rate but the overall profit of the account. The goal should be to make small losses and large gains.

Both warn against blindly trusting past conventional wisdom. Markets are complex and dynamic systems, and widely known rules quickly become invalid. Truly skilled traders often emerge during major market crashes or economic crises. When most people are overwhelmed by helplessness and extreme fear, hidden opportunities arise. Those who can remain calm and respond rationally stand out at such moments.