Byakko is Shishin's defensive engine, one of four regime-specialist engines. When the broad market is weak it rotates into the corners that tend to hold up, defensive sectors, healthcare and pharma, miners and commodities, so capital stays in the equities that work when the index does not.

Why is Byakko the only engine that wins more than half?

Because it is not a momentum engine. In Shishin's hypothetical five-year backtest it won 56.8% of its 155 trades with a positive median (+3.1%), unlike the momentum engines, which lose more often than they win and rely on a thin tail of large winners. Byakko trades smaller, steadier defensive moves. Past performance does not predict future results.

How does Byakko exit a trade?

Mostly on a fixed-horizon time exit rather than a trailing moving average: in the backtest 89 of 155 exits were timed, 49 were a volatility-scaled stop, and 17 were a gate exit, closed because the regime flipped back to risk-on. The median holding period was 11 trading days.

Inside Byakko: the engine that works when the market doesn't, by the numbers

This article describes one of Shishin’s research engines and the results it produced in a hypothetical five-year backtest. Backtest figures are not live trading results and do not predict future performance. It is educational, an explanation of how a systematic engine works, not personalised investment advice, and not a recommendation to buy or sell any security.

Byakko (白虎) is the odd one out among Shishin’s four engines. The other three have a momentum-shaped payoff: they lose more often than they win and make it back on a thin tail of large winners. Byakko is the opposite. It is the only engine that wins more than half its trades, the only one whose typical trade is a small gain rather than a small loss, and its job is the one nobody else wants: to keep capital working when the broad market is falling.

When Byakko is allowed to trade

When the broad equity tape is weak, the conventional advice is to go to cash. Byakko’s premise is that there is almost always a corner of the market that is not falling: defensive sectors, healthcare and pharma, miners and commodity names, the occasional defensive ETF. The regime classifier hands Byakko the day when breadth has deteriorated, and it was on duty a lot, 304 of the 1,258 backtested days, most of them sessions on which a long-only momentum engine would simply have been bleeding. Its function is regime translation: capital stays in equities, but only in the equities that work when the index does not.

What Byakko looks for

Byakko ranks a defensive opportunity set with the system’s composite score, but the names it surfaces are nothing like the small-cap breakouts the other engines chase. In the backtest its book clustered in pharmaceuticals, healthcare products and services, mining, and defensive sector ETFs, the places relative strength tends to hide in a downtape. It is looking for what is quietly holding up, or even rising, while everything else sells off.

How it enters and exits

Byakko fills on the close like every engine, but it exits differently from the momentum specialists, and that difference is most of why its distribution looks the way it does. Its dominant exit is a fixed-horizon time exit rather than a trailing moving average: in the backtest 89 of its 155 exits were the timed exit, 49 were a volatility-scaled stop, and 17 were a gate exit, the position closed because the regime itself flipped back to risk-on and the system rotated out of Byakko and back toward the breakout engine. The median holding period was 11 trading days. A defensive trade is taken for a defined window, cut if it breaks, and handed back when the weather clears.

What its trades actually look like

Here are all 155 of Byakko’s backtested trades, binned by outcome. Set it next to any of the momentum engines and the difference in shape is immediate:

Fig., Byakko’s 155 defensive trades, by outcome (locked five-year backtest, hypothetical). The most balanced distribution of the four engines: winners outnumber losers and the median trade is a small gain. The right tail is shorter than the momentum engines’, which is the trade-off for the higher hit rate. Past performance does not predict future results.

56.8% win rate. 88 winners, 67 losers, the highest hit rate of the four engines, and the only one above half.
The median trade gained 3.1%. Byakko is the only engine whose typical trade is a winner; its median sits in positive territory rather than down where the momentum engines’ stops cluster.
The mean trade made +5.8%, with the average winner (+17.0%) about twice the average loser (−8.9%). The payoff is flatter than the momentum engines: smaller winners, a higher hit rate. A few names still ran, CGC (+184%), NNOX (+71%), PACB (+54%), while the worst trade, KPRX, lost 15.0%.

The engine that earns the least, and matters anyway

Byakko contributed only 6.8% of the stack’s backtested gains, about $503,000, the smallest share of the four despite taking the most trades. That is the role. The momentum engines mint the big numbers in the regimes that suit them. Byakko’s job is to stop the drawdowns that would otherwise happen while those engines are correctly sitting out. An engine that keeps the book gently positive through the quarters when everything else should be flat is worth far more to the compounded result than its 6.8% line suggests, because the gains it protects are the ones that go on to compound. This is the same reason drawdown is treated as a metric, not an afterthought.

What we tested and didn’t keep

Byakko’s exit was the most heavily tested part of it. The obvious choice was to give it the same trailing-moving-average exit the momentum engines use, and we tried that, along with a hybrid of the two, against the fixed-horizon time exit. For a defensive engine the time exit won: the trailing exit kept it in defensive names too long, past the point where the regime had already turned. We also swept its stop and its sizing. The conclusion was that a defensive engine wants to be taken off the table on a schedule, not trailed like a trend, the reasoning behind close-confirmed versus timed exits is in volatility-aware stops, and the wider list of tested-and-dropped ideas is in the experiments that failed.

Why Byakko is one of four, not the whole strategy

Byakko run alone would be a mediocre strategy: a defensive book earns little in the long stretches when the broad market is rising, and it only shines in the windows everyone else dreads. But that is exactly what makes it the perfect counterpart to the breakout engine. When breadth is strong, the momentum engine carries the book and Byakko sits out; when breadth breaks, the system rotates into Byakko and the momentum engine stands aside. They are not uncorrelated, they are regime-opposed, and committing fully to whichever one fits the day beats blending them into a muted average. That opposition is the whole argument for four engines for four regimes.

Sources & methodology

The figures here are the Byakko slice of Shishin’s locked five-year backtest (hypothetical), counted per position with the late-stage partial trims merged back into their parent trade. How the book is measured, survivorship-free universe, close-fill convention, the leave-out-the-winners robustness test, and the per-trade significance battery, is documented in the five-year record, leave out the winners, why backtests lie, and statistical significance. The other engines are profiled in inside Suzaku, inside Genbu, and inside Seiryū, and the framework that switches between them is four engines for four regimes.

Shishin Research

Inside Byakko. The defensive engine, by the numbers.