Which moving average (e.g., 5-day, 25-day, 75-day) does he primarily refer to for judging the deviation rate?
Okay, let's talk about the strategy of this legendary trader Takashi Kogakure (also widely known as BNF).
Core Answer: He primarily references the 25-day Moving Average (25MA)
If you just want one answer, it's the 25-day line. This is his core yardstick for judging deviation and spotting opportunities for "buying during a downturn."
Why the 25MA? An Understandable Analogy
You can think of the 25-day moving average as a stock's "main force" or "center of gravity." It represents the average market cost over roughly the past month (since there are about 22 trading days a month).
The stock price, meanwhile, is like a wayward soldier. Sometimes he gets far ahead of the main force (price far above the MA), and sometimes he falls far behind (price far below the MA).
Kogakure's strategy specifically targets those "soldiers who have fallen too far behind."
This "fallen too far behind" level is what we call the deviation rate.
- A simple way to understand the deviation rate: It's how much the current price has strayed from the "main force" (25MA). For example, a deviation rate of -20% means the current price is 20% lower than the average price over the past month.
He believes that when a soldier falls too far behind (e.g., when the price falls 20% or more below the 25MA), he will likely instinctively try to rejoin the main force. This act of "rushing back" represents a price rebound. Kogakure aims to profit from this rebound.
(You can imagine the blue line in the chart as the 25MA. When the stock price (the candles) is exceptionally far from it, that's the opportunity BNF looks for)
Why not the 5-day or 75-day MA?
This is quite understandable and relates to his trading rhythm.
- 5-day moving average (weekly): This line is too "sensitive." Small price fluctuations can cause large deviations. If you use it to judge opportunities, you'll find too many "signals," which are noisy and prone to false signals from minor fluctuations, making it unsuitable for swing-type bottom-fishing. This is more like a reference line for sprinters.
- 75-day moving average (quarterly): This line is too "sluggish." It represents the average cost over a quarter, making it very stable. When the price falls significantly below even the 75MA, it often indicates the stock might be facing serious trouble, with the trend completely broken. Buying the dip at this point becomes very risky. This is more like a reference line for marathon runners.
So, the 25MA is just right.
It's neither as overly sensitive as the 5MA nor as sluggish as the 75MA. It perfectly captures the moment of "oversold" conditions caused by market panic within a medium-term downtrend. This timeframe suits his style of swing trading, which lasts from several days to weeks.
Summary: Takashi Kogakure's (BNF) core weapon is the "inverse trading strategy based on the negative deviation rate from the 25-day moving average."
He's like an experienced hunter, patiently waiting for the market to drive a good stock's price down to an "unreasonable" low due to panic (e.g., a significant deviation below the 25MA of -20% or more). Then he acts decisively, waiting for the price to return to rationality (rebound) to capture profits.
Of course, this is the core of his strategy. In actual trading, he also incorporates overall market sentiment, sector trends, and candlestick patterns. This is absolutely not a foolproof formula you can mindlessly copy.