Day Trading Legend: BNF - The God of Japanese Day Trading

2005.

Billionaire investor

Masayoshi Son was looking for a new way to grow his wealth.

Despite his $4.3 billion.

Not everybody folds under this pressure.

BNF made a name for himself after the J COM trade in 2005.

Everybody wanted a piece of him.

He became a Japanese legend known as the J COM Man.

But to BNF, it was just one trade.

Cup ramen, anime,

and spending most of his days alone in a room day trading.

After making ¥2 billion in one trade, BNF felt the same.

He just wanted the next trade.

But as he adapted to his newfound fame,

a deadly storm was coming,

as the global market

started showing signs of a bear market.

The greatest financial bubble of his lifetime,

one that could wipe out his portfolio size.

He knew he had to cut out the noise.

He had always kept it unprofessional.

Because he didn't kiss the ring of the people

with the chequebooks,

BNF had set up his trading in a tiny apartment.

His small, unprofessional setup reflected BNFs

distrust of the system.

1986 Osaka,

What are you doing?

That's way too far!

We got to rewind the track.

In 1986, Osaka,

Growing up, it was the same.

BNF spent most of his days inside.

But then a blessing happened to BNF

that turned his whole worldview bright,

and made him ready to believe you could outsmart

the system.

BNF was living the college life.

Like a lot of you, he was experimenting with...

erm...

his life purpose.

Ramen, anime, sake,

not much had changed, until one day he came

across an episode.

In 1998*, NHK, a Japanese TV network,

aired a four-part series about the world of finance.

With the first episode titled

‘The Man Who Lost 50 million’.

The episode covered the legendary

hedge fund manager Victor Niederhoffer.

Victor Niederhoffer was a wild guy.

He was a notorious speculator.

His fund traded options on Index futures,

and was known for blowing his fund twice.

After watching the series, BNF got hooked.

BNF was so inspired by the documentary, lifestyle

and trading,

he based his trader name, BNF on Victor Niederhoffer.

The game of trading and the freedom it gave,

It was the lifestyle he had always dreamed of.

But unlike Victor,

BNF wasn't born in opportunity.

At the time, BNF was a broke college student.

He knew he would have to save up

for years to even get started.

Let alone make profits?

Are you kidding me?

He knew nothing about trading.

And he's not like you,

he didn't have YouTube.

In the 1990s, Japan had very little

textbooks on trading, let alone trading via a computer.

There was no information on it.

Even though the odds were stacked against him.

Nothing in life beat the excitement he felt

when he thought about making millions in trading.

How his life would change.

The charts captivated him.

He knew he wanted to become a day trader,

against all odds.

So in college, he got the work.

BNF started working part-time jobs.

He was working weekday nights and weekend shifts.

Besides rent and cup ramen, he saved as much as he could.

In between college and his job, he spent every moment

he could looking at charts.

Day in and day out.

Studying price action.

Like a bear studying currents for its next meal,

Bnf was learning how stocks moved.

Studying all the top stocks in the Japanese Nikkei Index.

In time, he started identify meaning in the movements.

There is a flow to it.

To make up for the lack of available information,

he relied on building his own theories

on how the market worked.

He sacrificed

all his time.

After two years,

working part-time jobs and studying the charts

every single day,

the moment had come.

By living frugally, he had managed to save up

$16000.

It was time to face the markets.

Young, hungry and disciplined.

BNF is anxiously trading to make a living,

but the market he faced,

was an unforgiving bear market.

As you know in 2000,

the global stock market

had just been hit

by the burst of the Internet bubble,

aka

the ‘Dotcom’ bubble.

But what you might not know

is Japan

had already experienced a huge asset bubble burst

in the nineties.

It is known to Japanese economists as the ‘Lost Decade’,

where asset prices dropped over 70%.

A decade of terrible economic pain.

Despite studying the charts for two years,

BNF started suffering initial losses.

However, through his experience,

he quickly developed a strategy

that was simple yet brilliant.

In a bear market, the overall sentiment

is fear.

People hate losing,

and think positive upswings are unlikely in the short term,

so they underestimate their likelihood.

His strategy was Contrarian Trading.

BNF found when traders are fearful

about the overall bear market.

They will often oversell falling stocks

to avoid the pain of losing,

or in BNF’s own words:

‘When going for short-term rebound,

what you should focus on is the Moving Average Divergence.

In the bear market of ’01,

I would only look at stocks

deviating at least 20% off the 25-day moving average,

with 35% being somewhat a safe level to buy.

The price would then

surge and I would close the trade in a profit.’

But it wasn't that simple.

Even after stumbling upon this revelation,

a lot of BNFs trades were losses.

With more losers than winners.

It was painful to see his hard-earned savings shrink.

To him,

it seemed like some sectors of the market

were trickier than others.

Despite the pain,

he knew it was unrealistic to expect overnight success.

Instead, he decided to focus his mind

and double down on analyzing his losers.

From studying the losing charts.

BNF had realized his losers

were repeatedly the same sectors,

and each of them had different repeating deviations.

He concluded the divergent percentages

were different per sector,

or in BNF’s quote from his old 2-channel posts:

‘For the service sector stocks, the range of deviation

from the 25-day moving average

was between 22 and 30%.

For the post-dot.com crash IT stocks,

The ranges were 25 to 45%,

and for emerging stocks, it was 28% to 60%.’

Applying different numbers

per sector

allowed him

to find greater entries to the temporary upswings.

BNF had learned

he first had to develop a feel for the sector

before being able to make a trade.

With this intense focus,

he was producing more wins than losses.

But by December 2001, the bear market got even more insane.

There was a massive crash in penny stocks.

It looked like a market wide

Black Friday sale.

BNF saw 20% deviation opportunities everywhere.

These were companies with strong brands

and often liquid war chests.

A lot of BNF friends he met on 2-channel

started buying in.

It looked like the perfect buying opportunity.

But to BNF’s instincts,

he felt there was a problem.

When everything is on fire sale,

is it even a sale?

So he passed.

Having learned that different sectors

have different points of rebound.

Now was no different.

Instead of stocking up on the fire sale,

he only focused on the extreme cases.

Stocks that had dropped

significantly greater than the market average.

Stocks closer to 65% deviation.

off the 25-day moving average.

He made the right call.

All of his stocks rebounded after only 1 to 2 days.

A lot of them jumped up 50%.

Some even doubling after 2 to 3 trading days.

Remaining calm

and applying his self-developed

feel for the market had paid off.

If he had bought it

the typical levels

like his friends, his losses would have been catastrophic.

Instead, by the end of 2002,

BNF had grown his account to 1 million in US dollars.

He had become the great bear of Japanese day traders.

The high was exhilarating.

He was finally living off his trades.

But then a tragedy happened

to BNF that turned his whole worldview dark.

Yup.

The whole world went on a massive bull run.

You heard that right.

That's the tragedy.

Well, the whole world was ecstatic.

BNF was stressed.

See, BNF’s strategy only worked in a bear market.

He needed the fear sentiment.

But now the market has flipped.

He was facing a whole different opponent.

To continue making a living trading.

He had to figure out how to beat this new bull market.

And to make things worse,

he actually had some money now.

He didn't want to lose his freedom.

To ensure he didn't blow his account,

he had to find a system to minimize this risk.

From his past trades,

BNF learned the importance of market sentiment.

To minimize his risk,

he decided he didn't want to fight the bullish sentiment.

Instead, he wanted a strategy that profited from it.

I mean, we all know bull markets.

As long as you hold, you will make money in the long run.

But you can't daytrade that.

So, instead of holding long term,

using his understanding of codependency

in the Japanese market,

BNF found a new clever way to ride the bull run.

When the market strong, core companies

tend to rise with the index.

What BNF found is,

core companies don't go up at exactly the same time.

There are always laggers.

And that's where he buys.

He would ride these laggers up and then sell after a few days

or weeks.

Since these opportunities didn't

appear every day,

his trading transformed into a few trades per month.

Instead of trying to force his trades,

he stuck with this strategy.

Through years of experience, BNF had come to view trading

not as individual price action,

but rather as one global machine.

Understanding the relationship between individual

parts of this machine and his unemotional discipline,

That's his genius.

The strategy allowed BNF to maintain profitable

returns in the bull run.

His account grew by 10 million in two years.

And that's when things took a weird turn.

It's December 2005, 9 a.m.,

another morning on the Japanese Stock exchange.

The markets are rowdy as various new tech companies

had IPO'd on the market

in the last few months.

Traders were hungry for that next unicorn company.

However, this morning their eyes were on a new stock.

J COM Holdings, as it went public on the emerging markets.

Within minutes, panic emerged.

BNF couldn't believe his eyes.

J COM looked to have one of the greatest stock

drops in history.

Unsure of what was going on,

traders were hesitant to buy.

Concerns of financial fraud grew

and the internet started going wild over the story.

Meanwhile, at Mizuho Securities,

a man was fearing for his life.

He had made an unimaginable mistake.

His job was to sell 1 share of J COM at ¥610,000,

but instead

he sold 610,000 shares

for ¥1 each.

After it went live, there was no reversing it.

Luckily, the Japanese exchange

has what you call a limit up and a limit down,

meaning there's

a limit to how much a stock can move up or down in one day

to prevent highly volatile situations such as these.

But it wasn't enough.

BNF moved quick.

In a matter of minutes since the incident, he attacked.

He bought 7100 shares at the limit down price,

which gave him an unbelievable 49% stake in the company.

He put half his entire account size on his trade.

And his protegé CIS bought in alongside him.

The panic

escalates and

Mizuho Securities realized that can’t reverse their trade.

In a desperate attempt,

they tried to buy back as many shares as possible,

but they weren't the only buyers.

By now, even institutional players

have caught wind of this.

Everybody wanted a piece.

The price started rocketing as the market close approaches.

His protegé CIS cashed out his profits.

He even withdrew the money from the bank,

fearing government drawbacks.

But BNF didn't.

Instead, he remained calm.

He decided to take a calculated risk and sell

only a small number of shares.

BNF held 6000 shares overnight.

Would he lose half of his account size?

Or make an ungodly fortune?

For most traders,

this would be the most stressful night of their life.

But BNF was calm.

To him, it wasn't about the money.

It was a game.

And his opponent

had just made a huge blunder of a move.

The next morning,

while blood was on the streets,

the news came out.

The J COM Stock had got halted.

Fearing legal implications,

Large institutional players

returned their shares and profits to Mizuho Securities.

But rogue players like BNF refused.

As time passed

and the government showed

no intention of intervening,

Mizuho Securities only had one remaining solution.

A settlement.

Mizuho agreed to buyback rogue trader shares

at the expected morning price of the stock.

Before halting,

That opening price was set at an unbelievably high number

of ¥975,000.

BNF made a total profit of about

¥2 billion.

One of the largest profits ever made

by a bedroom day trader.

Everybody wanted to cover the story.

BNF became known as the ‘J COM Man’ in Japan.

Niche trading communities

started worshipping as a GOD amongst traders.

He had even won the attention of billionaire investor

Masayoshi Son.

Despite the high risk, BNF had come out on top.

He had now achieved legendary status.

Was it time to go pro?

He had finally won a comfortable, regular lifestyle

doing the thing he loved.

In an interview he did at the time,

he said,

‘I don't enjoy taking money off the account.

Seeing the physical amount of cash

makes me fearful of how much I'm

putting on the line trading.

It makes me a worse trader.’

BNF quickly realized

he hated the attention.

While the money gave him a comfortable lifestyle.

He noticed he had no motivation

to spend it on traveling the world

or living a high society lifestyle.

He would rather grab a drink in town with his friends.

Spending the money

only took away from his love for trading.

He only cared about the art of trading.

As BNF battled to maintain his humble

and comfortable lifestyle.

The tide shifted.

The markets were changing.

A familiar storm had returned on the horizon.

But little did he know

this would be his toughest challenge yet.

As BNF once again faced the birth of a new bear market.

He found himself

returning to his roots,

revisiting his same old strategy.

The Japanese news even covered the crumbling banking

system of the US.

This was a global event,

but BNF had been studying it for months already.

On September 13, 2008, BNF made a similar bet to J COM,

and invested $6.5 million in the Lehman Brothers stock.

Lehman's stock had fallen 73% that year.

See, Japanese banks were safe and boring,

and this was the fourth-largest investment bank in America.

It had strong reputation.

To BNF, a rebound was inevitable.

But he made a critical mistake.

BNF underestimated

the level of corruption in the US banking system.

Even though it met all his bear

market strategy deviation targets.

He didn't know the U.S. market.

He hadn't studied it the way he spent years studying

Japanese stocks,

and the fundamentals were off.

He had broken his own golden rule.

His 6.5 million went to

0 overnight.

After suffering such a painful loss.

BNF swore he wouldn't trade the US markets

ever again.

But the storm wasn't over.

The US housing market crash

led to a global collapse of the financial system.

For bear market traders like BNF,

when there's blood on the streets,

it's time to go in for the kill.

On October 10th, 2008,

he smelled blood.

The global financial system was collapsing.

The Japanese markets were taking a heavy hit,

and the Nikkei 225 index was no exception.

The Nikkei had dropped.

BNF saw an opportunity for a rebound.

So we bought in.

Following his old principles.

But the markets continue to move against him.

As the market closed,

he faced a decision.

Should he cut his losses

or hold overnight.

Knowing the exact setup had worked for him in the past.

BNF decided to hold.

But the markets got even worse in Japan.

In 2008, Japan was one of the countries hit hardest.

With the global financial crash,

people were buying a lot less consumer products.

And at the time,

Japan had restructured their economy

around export and trade openness.

90% of Japanese export was industrial supplies.

Though most of it went to Asia,

it was used for Western products,

which took a huge demand hit.

Further, Japan had been increasing its trade openness.

While it helped

Japan climb out of its stagflation economy in the 90s,

it also meant they were now more prone

to shocks in the stock market.

The next morning,

BNF woke up to nothing but red numbers.

His old deviation targets seemed to no longer work.

The index kept dropping.

BNF was on a losing streak,

heading towards greater losses.

While most traders would have went on tilt

and make desperate attempts

to reclaim their losses, BNF remained calm.

He found the discipline to cut his losers short.

But after the Lehman loss,

the hits were starting to add up.

He had to go back to the drawing board.

Nobody can time the bottom, or else we would all be rich.

His strategy of gradually increasing position size

based on the 25-day moving average deviations,

and differentiating per sector,

it had always worked.

And after careful analysis of the market,

he felt now should be no different.

However,

he noticed over the years,

his deviation targets had become outdated.

Markets had grown and rebounds across the Japanese sectors

had become quicker.

So,

he recalculated his deviation targets

per sector of the Nikkei index.

On October 27,

the Nikkei had fallen.

BNF went in for another rebound.

The market refused to work with him.

The Nikkei continued to fall.

As time passed, the weight of his trades got heavier.

Watching Anime to calm his mind, no longer worked.

Had he become too comfortable?

That day he realized his greatness

didn't come from his strategies.

It came from his ability to tune out the noise.

And his discipline, to develop his own

understanding of the market.

BNF stuck to his guns.

Instead of doubting himself and his own experience,

BNF doubled down on his trading strategy.

As the position continued to move against him

throughout the morning,

BNF went on a buying spree.

BNF started taking diversified positions

in the lot of the hardest

hit companies that formed the Nikkei.

His overall position size grew to

$ 64.8million

with positions in over 90 companies.

While the Nikkei had fallen below $7,000.

After the Tokyo Exchange lunch close,

the game changed.

A couple of the top names have begun to rally,

slowly bringing the Nikkei back up.

As the Nikkei climbed,

the positive chain reaction

started spilling over

to more of BNF’s positions before the market close.

Having faith in his understanding of the markets,

BNF decided to hold his position overnight.

The next morning,

the market continued to rally.

And that's when BNF decided to start to unload his position.

His trade

gave him a profit of over

$12 million.

BNF has regained his godlike status.

He was once again

a GOD amongst

Japanese traders.

In the last few years, BNF had diversified his portfolio.

He bought two commercial real estate buildings.

Commercial properties

tend to have longer term tenants,

and it offers great tax-cut incentives.

Real estate

is typically

a great place to benefit from

during an increase in inflation.

He sold one of his properties,

but he seemed to stick to his main focus;

Trading.

With no signs of changing his lifestyle

and his God-like growth.

BNF is on a mission to become the world's first

Billionaire Bear

Bedroom Day Trader.