Takashi Kotegawa's Peak Secrets—Trading Evolution from Contrarian to Trend Following

Among the legendary figures in the Japanese stock market, two are considered unparalleled: BNF (real name Takashi Kotegawa), renowned as a stock market legend, and CIS, known as the strongest retail investor. Their growth trajectories are remarkably similar—both started trading in college, gradually grew their small capital into assets worth billions, and rose to fame simultaneously during the 2005 J-COM order misplacement incident. In that event, CIS made a profit of 600 million yen, while Takashi Kotegawa earned 2 billion yen in just 10 minutes, equivalent to about 150 million RMB at the time. These two trading masters are not only close friends but also share an astonishing resonance in their trading philosophies.

Turning adversity into opportunity—The divergence rate strategy of contrarian investing

Takashi Kotegawa’s initial success in accumulating assets to 100 million yen was largely due to his early adoption of contrarian investment strategies. Between 2000 and 2003, the internet bubble burst worldwide, plunging the Japanese stock market into a bear market. Most investors panicked, but Kotegawa saw the market’s intrinsic patterns—that even in a persistent downtrend, cyclical rebounds occur. His core idea was: many assets are already far from their intrinsic value during these declines, presenting numerous severely undervalued buying opportunities.

He developed a stock selection system based on the divergence rate from the 25-day moving average. The logic is: if a stock’s 25-day moving average is 100 yen, and the current price drops to 80 yen, the divergence rate is -20%. When the divergence is significantly negative, it often indicates the price has been excessively suppressed, signaling a buying opportunity. Conversely, if the price rises to 120 yen and the divergence reaches +20%, it suggests a short-term overvaluation and a risk of a pullback due to excessive buying. The divergence thresholds vary across stocks and industries, and Kotegawa adjusts his standards flexibly based on large-cap, small-cap, and sector characteristics.

This strategy requires not only courage but also extensive research and dedication. It’s this persistence that allowed Kotegawa to defy the bear market and steadily build his success.

Market turning point—How Kotegawa broke through asset bottlenecks

2003 marked a crucial turning point. As Japan’s economy reformed and global recovery took hold, the market entered an upward trend, profoundly influencing Kotegawa’s trading mindset. He decisively abandoned his contrarian “buy cheap” approach and embraced trend-following trading, causing his assets to soar from 100 million yen to 8 billion yen.

This strategic shift demonstrated the flexibility of a true trading master—he does not rigidly stick to one method but optimizes his strategy in real-time according to market conditions. When the market is weak, he precisely bottoms out; when the trend is rising, he decisively chases gains. This dynamic adaptability is his secret to surpassing peers.

The art of risk diversification—deep logic behind holding 50 stocks simultaneously

After adopting a trend-following approach, Kotegawa established a unique operational framework: he typically conducts short-term trades lasting two days, holding 20 to 50 different stocks daily. Although seemingly aggressive, this approach embodies a profound risk management philosophy.

Through high diversification, he effectively reduces the deadly risk of any single stock. Even if one stock moves against expectations, the overall portfolio loss remains manageable. Stocks bought on one day are held until the next morning; based on their performance, he either takes profits or cuts losses, then quickly switches to new targets meeting his criteria. This disciplined cycle ensures efficient capital flow and real-time risk control.

Additionally, Kotegawa excels at exploiting industry linkage effects. For example, among the four major steel industry leaders, once one starts to rise, he immediately targets the remaining three that haven’t yet surged, riding the entire industry wave. This “follow the lagging stocks” strategy not only captures the main upward trend but also reduces individual stock risk.

CIS’s trend-following wisdom and surpassing—deep insights into market continuity

While CIS does not have a systematic method like Kotegawa’s divergence system, his principle of trend-following provides another dimension to trading philosophy. His core insight is: stocks that are continuously rising are likely to keep rising, and those that are falling are likely to continue declining. The market itself has strong continuity, contrary to the common misconception that “rising for a long time must fall, falling for a long time must rise.”

Many retail traders see stock movements as a 50-50 probability game. When a stock rises consecutively, they instinctively think it’s about to top out and take profits early, missing large parts of the trend. In reality, market forces are more directional—strong stocks attract continuous inflows, creating a “the strong get stronger, the weak get weaker” effect.

The brutal choices of stop-loss and adding to positions

Another key insight from CIS concerns handling losses. When a stock’s price moves against your position, the wisest move is to admit the mistake and cut losses quickly. The opposite—adding to a losing position—often only magnifies losses exponentially.

Many traders obsess over win rate metrics but overlook the more critical overall account profitability. In reality, losses are inevitable; the key is to cut losses promptly and keep them manageable. True trading wisdom lies not in avoiding failures but in achieving an asymmetric profit structure—small losses, big gains.

Ultimate market wisdom—transcending crises

Whether it’s Kotegawa’s divergence system or CIS’s continuity principle, they share a common limitation—their effectiveness diminishes once widely disseminated. Market itself is a complex, dynamic system; any simplified “golden rule” quickly becomes ineffective over time. Truly outstanding traders often emerge during major market crashes, economic crises, or turning points.

It is precisely in moments of despair, extreme panic, and volatility that markets release the greatest fluctuations and opportunities. Those who can remain calm and act decisively amid chaos are the ultimate trading legends. The stories of Kotegawa and CIS are essentially perfect examples of “finding opportunities in crises.”