Kotetsu Kotegawa and CIS's Trading Evolution Theory: From Contrarian Positioning to Trend Following

When it comes to legendary figures in Japan’s trading circle, two top experts must be mentioned: Takakawa Ryu and CIS. Takakawa Ryu is renowned as the “God of Trading,” while CIS has gained market recognition with the title of “The Strongest Retail Trader.” Their stories are not just personal success legends but also living textbooks on the evolution of trading strategies.

Market Environment Changes, Trading Strategies Evolve

From 2000 to 2003, the burst of the internet bubble triggered a global bear market, and the Japanese stock market also plunged. During this pessimistic period, Takakawa Ryu saw value that many overlooked. He realized that even in a bear market, prices don’t fall in a straight line; instead, opportunities for rebounds can emerge amid despair.

This insight helped Takakawa Ryu develop a contrarian strategy, gradually growing his initial capital from a small amount to 100 million yen. His approach seems simple but requires strong mental resilience and solid analytical skills.

When the market environment shifted in 2003 and the global economy began to recover, Takakawa Ryu flexibly adjusted his trading mindset. His assets skyrocketed from 100 million yen to 8 billion yen. This transformation wasn’t accidental but stemmed from his keen sense of market rhythm—shifting from exploiting undervalued opportunities in downturns to riding the momentum during uptrends.

Divergence Rate Stock Selection: Finding Undervalued Opportunities in Downturns

Takakawa Ryu’s contrarian investment strategy has a specific operational framework. He mainly relies on observing the divergence rate of a stock’s 25-day moving average to select targets. Simply put, the divergence rate measures how far the stock price deviates from its moving average.

For example, 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 rate shows a large negative value, it often indicates the price has fallen out of a reasonable range and may be severely undervalued. Takakawa Ryu targets these undervalued stocks, profiting from subsequent rebounds.

Conversely, if the stock is at 120 yen with a divergence rate of +20%, caution is needed for short-term overvaluation. It’s important to note that different-sized stocks and industries have varying sensitivities to divergence rates. Takakawa Ryu adjusts his benchmarks accordingly for large caps, small caps, and sector characteristics as reference points for entry.

From Contrarian to Trend Following: Takakawa Ryu’s Strategy Shift

As the market enters an uptrend, Takakawa Ryu’s trading logic also undergoes a qualitative change. He adopts a “two days, one night” short-term strategy—buy a stock, hold overnight, and then take profits or cut losses at the next morning’s open.

More notably, he often holds 20 to 50 stocks simultaneously. This isn’t traditional diversification but a carefully designed risk management mechanism—by trading multiple targets at once, he minimizes individual position risk. Even if one stock performs poorly, the overall account remains stable.

Takakawa Ryu is also skilled at using industry linkage effects to find lagging stocks. For example, among the four major steel giants, if one leads the rally, he shifts focus to the other three that haven’t yet caught up, riding the industry resonance to buy lagging stocks that meet criteria. This method captures trends while reducing the risk of individual stocks.

Core Principle of Trend Following: Recognize Market Power, Not Fight It

CIS, another top trader in Japan, although lacking Takakawa Ryu’s explicit quantitative indicators, summarizes trend-following principles that offer profound insights to the trading community.

CIS’s core belief is: stocks that have been rising continuously are likely to keep rising; those that have been falling are likely to continue falling. The market doesn’t follow the “mean reversion” idea—where overbought stocks fall and oversold stocks rise. Instead, markets have strong momentum: bullish trends attract more capital, reinforcing the upward move; bearish trends lead to capital withdrawal, accelerating declines.

This means traders need to accept the market’s inherent strength rather than oppose it. Many people, seeing stocks rise persistently, instinctively think “it’s about to fall,” and choose to wait on the sidelines. But in a strong bull market, this passive attitude often causes missed opportunities.

Pitfall Avoidance: Stop Loss, Adding to Positions, and the Truth About Win Rates

CIS also emphasizes the opposite of trend following—avoiding the trap of adding to losing positions. When a stock you bought starts to decline, the wisest move is to admit failure and exit quickly. Many traders go against this, trying to average down, which only enlarges losses.

Regarding win rates, CIS offers insightful views. Many obsess over the success rate of individual trades but overlook overall profitability. Losses and risks are inevitable; the key is to achieve “small losses, big wins.” For example, a 5% loss paired with a 20% gain can still result in overall profit.

Opportunities in Market Volatility: How True Trading Masters Respond

Both Takakawa Ryu and CIS have made headlines during the famous J-COM order mistake incident. On that day, CIS earned 600 million yen, while Takakawa Ryu made 2 billion yen in just 10 minutes (equivalent to about 150 million RMB at the time). This wasn’t luck but the result of maintaining calm and making swift decisions amid extreme market volatility.

They both remind traders not to overly rely on “golden rules.” Markets are dynamic and complex systems; once rules are widely circulated, they tend to lose effectiveness quickly. Truly excellent traders often emerge during stock crashes, economic crises, or market turning points—when most are panicking and clueless, those who analyze calmly and dare to act stand out. The more volatile the market, the more hidden opportunities there are.

Takakawa Ryu and CIS’s trading careers teach us that success isn’t about finding a perfect, always-effective formula but about adapting strategies flexibly to market conditions while maintaining respect for risk and honoring the market’s power.