Pullback and K-line counting—endless pullback, multi-cycle perspective, and counter-trend exit strategy

This is the final lesson of "Retracement and K-line Counting". This lesson will focus on three key points: first, the endless retracement that develops into a reverse trend; second, the differentiated performance of retracements across different timeframes; and third, the vigilance and exit techniques for counter-trend traders when High 2 and Low 2 signals appear, bringing the entire course to a complete conclusion.

1. Endless Retracement: From Trend Pause to Full Reversal

Endless retracement (or rally) is a special form of retracement, characterized by prolonged duration within a narrow channel, ultimately breaking the original trend balance and equalizing the probabilities of trend reversal and continuation.

1. Core Definition and Criteria
   When a retracement persists for 20 or more K-lines in a narrow channel, it can be termed an "endless retracement"; similarly, in a downtrend, a rally lasting 20 or more K-lines in a narrow upward channel is an "endless rally". At this point, the probability of the original trend continuing drops from high to 50%, while the probability of a reverse trend reversal rises to 50%, putting the market in a neutral state.

In an uptrend, the early stages of an endless retracement often resemble a bull flag, gradually evolving into a downward-sloping consolidation range. The rebound amplitude within the narrow channel is minimal, typically lasting only 1-2 K-lines, continuously reducing the probability of the original trend resuming. Any upward movement is more likely a minor reversal rather than trend continuation.

1. Different Manifestations in Uptrends and Downtrends
   In an uptrend's endless retracement, if a strong bearish breakout occurs accompanied by strong follow-through K-lines (e.g., a large bearish candle), the market will at least experience a second leg down, possibly even breaking the measured move (MM) target. The probability of a bull flag breaking downward is only 40%, but once it becomes an endless retracement, the breakout probability rises to 50%.

In a downtrend's endless rally, the opposite holds: the longer the narrow upward channel persists, the lower the probability of bears resuming the original trend. A large bullish candle breaking the bear flag with good follow-through will likely trigger a second leg up, and even if there is temporary consolidation midway, it is often followed by a larger upward wave.

1. The Transitional Role of Consolidation Ranges
   Endless retracements/rallies often lead the market into consolidation ranges, such as narrow consolidations lasting 20 or more K-lines, where bullish and bearish forces are completely balanced. Subsequent breakouts, whether bullish or bearish, require caution against false breakouts, waiting for confirmation from follow-through K-lines before deciding on entry direction.

2. Multi-Timeframe Perspective: Simplifying Complex Retracement Structures

The same retracement behaves very differently across timeframes. Higher timeframes can simplify complex structures, while lower timeframes refine trading signals. Flexible timeframe switching is key to accurate judgment.

1. Higher Timeframes Simplify Structure
   A seemingly complex retracement on a 5-minute chart may contain a consolidation range of over 100 K-lines, making counting K-lines confusing. But switching to higher timeframes like 15-minute or 60-minute charts clarifies the structure. For example, a compound High 1, High 2 structure on a 5-minute chart may appear as a simple High 1, High 2 bull flag on a 60-minute chart; multi-segment consolidations on a 5-minute chart may only show as a Low 1, Low 2 shorting structure on higher timeframes.

When market movements are hard to interpret on lower timeframes, switching to higher timeframes is an effective solution, helping traders look beyond short-term fluctuations and grasp the core trend direction of the retracement.

1. Lower Timeframes Refine Signals
   A single signal on a higher timeframe may contain richer structures on lower timeframes. For example, a Low 1 short entry on a 5-minute chart might be a more intricate three-push wedge bear flag on a 1-minute chart; a long lower shadow doji on a 5-minute chart would clearly show the "first decline, then rise" process on a 1-minute chart, possibly including multiple micro-reversal structures.

However, most traders need not overanalyze lower timeframes. If trading primarily on 5-minute charts, focus on signals at that level. For finer entry timing, refer to 1-minute charts as supplementary.

1. Core Principles of Timeframe Switching
   The purpose of timeframe switching is to aid judgment, not complicate decisions. Use higher timeframes to determine direction and lower timeframes to pinpoint entries. For example, after identifying a High 2 long opportunity on a 60-minute chart, look for breakout points on a 5-minute chart to place orders; after spotting a Low 1 short signal on a 5-minute chart, confirm with a 1-minute chart for reinforcing patterns like three-push wedges.

3. High 2/Low 2 Signals: The Exit Red Line for Counter-Trend Traders

High 2 and Low 2 are not just high-probability entry points for trend-following trades but also warning lines for counter-trend traders to exit. When these signals appear, counter-trend holders must exit decisively to avoid escalating losses.

1. High 2 in Uptrends: Exit Signal for Bears
   In an uptrend, High 2 is an extremely high-probability long signal, primarily because bears will cover en masse at this point. Bears may attempt counter-trend shorts at High 1, tolerating one rejection from the market. But when High 2 appears, signaling the market's second attempt to resume the uptrend, bears will not allow a second rejection and will immediately buy to cover.

Meanwhile, bulls will also enter at High 2, knowing bears are about to capitulate. Simultaneous buying from both sides drives the price further up, making sellers scarce and significantly boosting upward momentum. Even if the High 2 signal candle is bearish, bears will exit cautiously to avoid being swept up by the trend.

1. Low 2 in Downtrends: Exit Signal for Bulls
   In a downtrend, Low 2 is a high-probability short signal, with the opposite logic of High 2. Bulls may attempt a counter-trend long at Low 1, but when Low 2 appears, indicating the market's second attempt to resume the downtrend, bulls—having failed twice to reverse the trend—will exit decisively to cut losses.

Bears, meanwhile, will actively enter at Low 2, as the market lacks buying support and is likely to decline further. For example, at a 50% retracement level in a downtrend, if a micro double top coincides with a Low 2 signal, bulls must exit promptly even if the candle is bullish, to avoid deeper declines.

3. Techniques for Special Scenarios
Counter-trend trading is riskier in narrow channels. For example, bears in a narrow uptrend channel must exit immediately at a High 2 signal, because the narrower the channel, the stronger the trend-resuming momentum. The best outcome for bears is often just a consolidation range, not worth the risk of holding through a reversal. Similarly, bulls in a narrow downtrend channel must cut losses decisively at Low 2.

4. Course Summary

As the conclusion to "Retracement and K-line Counting", this lesson synthesizes three key trading concepts: first, endless retracements/rallies, clarifying that when a narrow channel persists for 20 or more K-lines, the probabilities of trend reversal and continuation are both 50%, requiring vigilance against breakout risks; second, the application of multi-timeframe analysis, where higher timeframes simplify complex structures and lower timeframes refine signals, improving judgment precision; and third, the counter-trend exit strategy for High 2/Low 2 signals, which are not just high-probability trend-following entries but also red lines for counter-trend positions, crucial for trend mastery.

The entire course revolves around retracement definitions, K-line counting methods, specific pattern trading, and multi-timeframe applications, with the core logic being "follow the trend"—identifying retracement/rally signals to find high-probability entries while planning stops and exits. The essence of trading lies not in obsessing over pattern names but in reading market trends and gauging shifts in bullish and bearish forces.$NVIDIA(NVDA.US) $Tesla(TSLA.US)