Understanding K-Line Technical Analysis: The Mysterious N-Shaped Theory

The N-Shaped Theory is a classic trend analysis tool in K-Line technology, derived from wave dynamics and major player trading logic. Its core is to simplify price fluctuations into an 'N' shaped structure, helping investors accurately identify trend continuation or reversal signals.

1. Basic Definition and Principle

The N shape is not a single K-line but a price movement pattern composed of 3-10 consecutive K-lines. The underlying logic is that market prices follow a wave-like operation pattern. A complete N shape structure consists of three segments: the first segment is a driving wave, consistent with the trend direction; the middle segment is an adjustment wave, serving the role of pullback and consolidation; the second segment is a continuation driving wave, marking the trend's restart, intuitively reflecting the complete trading intentions of major players to accumulate, consolidate, and push up prices.

2. Pattern Classification

1. Ascending N Shape

Structure: Low point A → High point B (first wave up, accompanied by volume increase) → Low point C (pullback phase, with volume shrinkage, and point C is higher than point A) → High point D (second wave up, point D breaks above the new high of point B).

Signal Meaning: Strong bullish power, with the ascending trend continuing after short-term adjustments, is a typical buying signal in an uptrend channel.

2. Descending N Shape

Structure: High point A → Low point B (first wave down) → High point C (rebound phase, and point C is lower than point A) → Low point D (second wave down, point D breaks below the new low of point B).

Signal Meaning: Strong bearish dominance, with the descending trend continuing after a brief rebound, is a clear sell or short signal.

3. Formation Conditions

Cycle and K-line Count: Composed of at least 3-5 K-lines, applicable for multi-cycle analysis such as hourly, daily, and weekly charts.

Volume-Price Coordination: The driving wave needs to show increased volume (large bullish/bearish candlestick body), and the adjustment wave needs to decrease in volume (small bearish/bullish candlestick body).

Strength Requirements: The increase/decrease in the second driving wave must be stronger than the first wave; the pullback must be controlled within 50%-61.8% of the previous wave's movement (Fibonacci key ratio range).

Position Requirements: The pattern must appear within a clear trend channel; isolated N shapes have relatively low reference value.

Auxiliary Confirmation: It needs to be combined with moving averages (price above/below moving average), MACD golden cross/death cross, RSI not entering overbought/oversold zones, and other indicators for cross-validation.