There really are some fascinating figures in Japan's trading world. Many people have heard of BNF and Takashi Kotegawa. Especially during the famous J-COM incident, they suddenly drew a lot of attention. That day, Takashi Kotegawa made 600 million yen, and BNF earned 2 billion yen in just 10 minutes. Considering the market conditions at the time, you can understand the scale involved.

These two actually share similar backgrounds. They started trading during their university days, gradually building up from small capital, and now they are traders managing tens of billions of yen. Japan’s trading scene tends to be modest, and it’s really rare for traders to openly share their methods, but BNF is an exception, revealing his unique trend-following strategy. Takashi Kotegawa also shares practical principles of trend-following, which are still very applicable in today’s markets.

To understand BNF’s approach, we need to look at his early contrarian investments. During the internet bubble burst from 2000 to 2003, stock markets worldwide entered a bear market. The Japanese market was no exception, with many investors suffering losses and a pervasive sense of pessimism. However, even in a bear market, the market doesn’t decline monotonically. From despair, new sprouts emerge, and prices fluctuate with rebounds, showing a trend.

BNF’s view is that asset prices often deviate significantly from their intrinsic value. He looks for undervalued stocks and profits from rebounds after sharp declines. This requires considerable courage and resolve, as it involves deep research and analysis. He focuses on the divergence rate of the 25-day moving average. He buys stocks with a large negative divergence rate.

For example, if a stock’s 25-day moving average is 100 yen and the current price is 80 yen, the divergence rate is -20%. Such a large negative divergence suggests the price is excessively low. Conversely, if the divergence rate is +20% at 120 yen, it may indicate the stock is overbought in the short term, warranting caution. The reference divergence rate varies depending on the industry and stock size.

In 2003, as the Japanese market entered an upward phase driven by reforms and global economic recovery, BNF’s strategy also evolved. During this shift, his assets rapidly increased from 100 million yen to 8 billion yen. When the market was cooling, he focused on buying at lows, and as the market warmed, he shifted to trend-following. It’s a strategy that quickly responds to market rises.

An interesting aspect is his position management method. He prefers short-term trades, holding 20 to 50 stocks simultaneously in a single day. This avoids over-concentration on a single stock and spreads risk across multiple holdings. Stocks bought that day are held overnight, then sold for profit or cut losses the next morning, quickly switching to new stocks. This strict cyclical operation is a key part of his approach.

He’s also skilled at using industry correlation effects. For example, if one of the four major steel companies starts rising, he checks the other three that haven’t yet gone up. By picking up lagging stocks that meet certain conditions, he rides the overall industry’s upward wave.

On the other hand, Takashi Kotegawa doesn’t have a specific, detailed method like BNF, but his trend-following principles complement BNF’s strategy well. Kotegawa’s view is that stocks that have been rising consecutively are likely to continue rising, and those that have been falling are likely to keep falling. This fundamental assumption is at the core of his trend-following trading.

Many people see stock movements as a 50-50 probability game, but the market doesn’t maintain such balance. Instead, it exhibits strong persistence. Stocks with strong performance attract inflows, and the strong get stronger while the weak get weaker. You should accept the market’s power and not fight it.

The idea of buying during a decline should also be avoided. When stocks are rising sharply, many fear buying at the top, waiting for a short-term dip to buy. But in a bullish market, waiting for that timing can cause you to miss the overall trend.

Kotegawa also warns against adding to losses. When stock prices start falling, the best move is to admit failure and cut losses quickly. Adding to losses is just doubling down on a losing position, often making losses worse. Obsessing over win rates is also dangerous. What matters most is the overall profit of your account.

In the market, risk and losses are inevitable. Our goal shouldn’t be to avoid failure altogether but to execute timely stop-losses. Small losses can lead to big profits—that’s the essence.

Finally, it’s important not to blindly trust past rules. The market is a complex, dynamic system, and widely known rules quickly become invalid. Truly skilled traders often emerge from major market crashes or economic crises. When most people feel helpless and are ruled by fear, the market experiences significant volatility. The greater the fluctuation, the more hidden opportunities there are. Staying calm and acting swiftly are what set the few who succeed apart.