Takakawa Ryuya and CIS's Trading Strategy Evolution: From Undervaluation Mining to Riding the Trend

Among the legendary figures in the Japanese stock market, stories of two traders are widely circulated. One is known as the God of Trading, Takashi Kotegawa (BNF), and the other is CIS, dubbed the “Strongest Retail Investor.” They are not only lifelong friends but also rose to fame together during the famous J-COM misorder incident—on that day, CIS made 600 million yen in profit, while Kotegawa only took 20 billion yen in 10 minutes, roughly equivalent to 150 million RMB at the time. Both started trading in college and, through years of accumulation and practical exploration, gradually became operators managing tens of billions of yen.

Although Japan’s trading community has always been low-profile, with traders rarely revealing their strategies, Kotegawa has unusually shared a complete trend-following trading system, and CIS has disclosed practical trading principles. These methods have been deeply studied by many traders and remain highly relevant today.

Foundations of Contrarian Investing: Precise 25-Day Divergence for Profitable Mining

To understand Kotegawa’s trading evolution, we must start with his early contrarian investment strategy, which was key to growing his account from zero to 100 million yen.

Between 2000 and 2003, the global internet bubble burst sent shockwaves through stock markets worldwide. Japan’s market was no exception, with many investors suffering heavy losses amid extreme pessimism. Yet even in a bear market, prices do not move downward in a straight line—they fluctuate around their fundamental value, with cyclical ups and downs.

Kotegawa keenly realized that in such extreme conditions, asset prices often deviate significantly from their true value. His strategy was to identify severely undervalued stocks and buy them during sharp dips, then profit from their rebounds. This required extensive analysis and the discipline to stay rational and resolute amid market panic.

Specifically, he monitored the divergence rate of the 25-day moving average (MA). Simply put, the divergence rate measures how far the current price deviates from the 25-day MA. For example, if a stock’s 25-day MA is 100 yen and the current price drops to 80 yen, the divergence rate is -20%. When this value becomes significantly negative, it indicates the stock is severely undervalued, signaling a buying opportunity. Conversely, if the price surges to 120 yen, the divergence rate hits +20%, suggesting the stock is overbought in the short term and warrants caution.

Different stocks and sectors have varying reference standards. Kotegawa adjusts the divergence thresholds based on the characteristics of large-cap, small-cap, and industry-specific stocks, using these as entry signals. This approach helped him accurately bottom fish during bear markets, laying the foundation for subsequent asset growth.

Trend Following Rise: From 100 Million to 8 Billion Yen

By 2003, as Japan pushed economic reforms and the global economy recovered, the stock market entered an upward cycle. This shift prompted Kotegawa to make a crucial strategic change—abandoning contrarian tactics in favor of trend-following methods. This transition propelled his account from 100 million yen to 8 billion yen.

In bear markets, he focused on precise bottom fishing; in bull markets, he shifted to riding the long-term trend. Kotegawa typically engaged in ultra-short-term trades lasting two days or less, holding 20 to 50 different stocks simultaneously each trading day. This diversified approach reduced risk from individual stocks—losses in one could be offset by gains in others. He would buy stocks in the morning, hold until the next day’s open, then quickly take profits or cut losses based on price action, switching to new targets in a continuous cycle.

He was especially adept at leveraging sector linkages, focusing on catching lagging stocks. For example, if one of the four major steel companies started rising, he would look at the other three still lagging behind, and position himself in those that met criteria, riding the entire industry’s upward wave. This method allowed him to follow mainstream opportunities while also uncovering overlooked potential.

CIS’s Additional Principles: Deep Understanding of Market Continuity

Unlike Kotegawa, CIS never developed a formal trading system, but his trend-following principles complement his approach well.

His core idea is straightforward: stocks that are rising tend to continue rising, and those falling tend to keep falling. Most of his trading decisions are based on this fundamental belief.

This view, seemingly simple, touches on a common blind spot among traders. Many see upward and downward movements as probabilistic—believing that chances of rise and fall are roughly equal. When a stock keeps climbing, traders often think it’s about to reverse. But market logic is quite different—price trends tend to persist.

When a stock performs strongly, it attracts continuous inflows, making the strong stronger and the weak weaker—this reflects the true market force. Respect and follow this momentum rather than fighting it.

The same applies in reverse. Many traders buy on dips, thinking they’re getting bargains. But in a strong bull market, this can be dangerous. When stocks surge, investors fear buying at high prices and wait for a correction. Yet, no one knows if such a correction will happen, and waiting can mean missing the entire rally.

Risk Management and Psychological Discipline: The Path to Small Losses, Big Gains

Contrary to trend-following, some traders add to losing positions. CIS strongly opposes this. He believes that once a stock’s price starts falling after purchase, the wisest move is to admit the mistake and cut losses quickly. Increasing a losing position—adding more funds to a failed trade—only enlarges the loss.

In trading, it’s unnecessary to obsess over win rate; what matters is overall account profitability. Losses and risks are inevitable. Traders must accept this reality. The key is to cut losses promptly—allow small losses to occur but ensure that each profitable trade yields much more than the losses. This is the essence of “small losses, big gains,” and a necessary condition for long-term stable profits.

Market Volatility as an Opportunity: The Value of Unique Perspectives

CIS warns traders not to blindly trust the so-called “rules” circulated in markets. Markets are complex, dynamic systems—once a rule becomes widely known, it often loses effectiveness. Truly competitive trading requires unique insights and sharp judgment.

History shows that the greatest traders often emerge during major crashes, economic crises, or market turning points. It’s precisely in these moments—when most are overwhelmed by panic—that markets generate enormous volatility and opportunities. For those who can stay calm amid chaos and act decisively, this is the best stage to stand out.

The experiences and philosophies of Kotegawa and CIS teach us that the highest level of trading is not about predicting markets but understanding their fundamental forces—recognizing that trend persistence outweighs probability balance, maintaining rationality amid volatility, and continuously refining one’s trading perspective through practical experience.