diff --git a/scripts/generate.py b/scripts/generate.py
index 22e39aa..6873f04 100644
--- a/scripts/generate.py
+++ b/scripts/generate.py
@@ -79,7 +79,8 @@ def main() -> None:
                     help="Optional output MIDI file path.")
     ap.add_argument("--prefix", default=None,
                     help='Space-separated chord symbols in the requested key, '
-                         'e.g. "Cmaj7 Am7".  Used as generation context.')
+                         'e.g. "Cmaj7 . Am7 .".  Use "." for held positions '
+                         'and "NC" for no-chord positions.')
     ap.add_argument("--no-tonic-anchor", action="store_true", dest="no_tonic_anchor",
                     help="Do not prepend the tonic chord when --prefix is not given.")
     ap.add_argument("--temperature", type=float, default=1.0,
diff --git a/src/generate.py b/src/generate.py
index 2e068de..7dad9d8 100644
--- a/src/generate.py
+++ b/src/generate.py
@@ -145,22 +145,33 @@ def _transpose_to_key(period: ChordPeriod, target_key: str) -> ChordPeriod:
 # Prefix encoding
 # ---------------------------------------------------------------------------
 
-def _encode_prefix(chord_symbols: list[str], shift: int) -> list[int]:
-    """Encode chord symbols (in user key) as canonical body token IDs.
+def _encode_prefix(chord_symbols: list[str], shift: int) -> tuple[list[int], int]:
+    """Encode prefix tokens (chord symbols, '.', 'NC') as canonical body token IDs.
 
     *shift* is the semitone offset from user key to canonical (C/Am).
-    Returns a flat list: ROOT QUAL EXT BASS [ROOT QUAL EXT BASS ...].
+    '.' encodes as a single HOLD token; 'NC' encodes as a single NC token.
+    A chord symbol encodes as four tokens: ROOT QUAL EXT BASS.
+    Each element (chord, hold, or NC) counts as one bar position.
+
+    Returns (ids, n_positions).
     """
     ids: list[int] = []
+    n_positions = 0
     for sym in chord_symbols:
-        t = parse_chord_symbol(sym)
-        root = _transpose_note(t.root, shift)
-        bass = "root" if t.bass == "root" else _transpose_note(t.bass, shift)
-        ids.append(TOKEN_TO_ID[f"ROOT_{root}"])
-        ids.append(TOKEN_TO_ID[_qual_token(t.quality)])
-        ids.append(TOKEN_TO_ID[f"EXT_{t.extension}"])
-        ids.append(TOKEN_TO_ID[f"BASS_{bass}"])
-    return ids
+        if sym == ".":
+            ids.append(_HOLD)
+        elif sym == "NC":
+            ids.append(_NC)
+        else:
+            t = parse_chord_symbol(sym)
+            root = _transpose_note(t.root, shift)
+            bass = "root" if t.bass == "root" else _transpose_note(t.bass, shift)
+            ids.append(TOKEN_TO_ID[f"ROOT_{root}"])
+            ids.append(TOKEN_TO_ID[_qual_token(t.quality)])
+            ids.append(TOKEN_TO_ID[f"EXT_{t.extension}"])
+            ids.append(TOKEN_TO_ID[f"BASS_{bass}"])
+        n_positions += 1
+    return ids, n_positions
 
 
 # ---------------------------------------------------------------------------
@@ -233,14 +244,11 @@ def generate_period(
 
     positions_per_bar = _expected_positions(time, subdivision)
 
-    encoded_prefix: list[int] = []
+    pos_in_bar = 0
     if prefix:
-        encoded_prefix = _encode_prefix(prefix, shift_to_canonical)
+        encoded_prefix, n_prefix_positions = _encode_prefix(prefix, shift_to_canonical)
         ids.extend(encoded_prefix)
-
-    # Compute starting position-in-bar after the prefix
-    # Each chord in prefix = 4 tokens = 1 position
-    pos_in_bar = (len(encoded_prefix) // 4) % positions_per_bar
+        pos_in_bar = n_prefix_positions % positions_per_bar
 
     last_id = ids[-1]
     context_limit = model.max_seq_len - 1  # leave one slot so seq_len never hits max
diff --git a/tests/test_generate.py b/tests/test_generate.py
new file mode 100644
index 0000000..d2719f7
--- /dev/null
+++ b/tests/test_generate.py
@@ -0,0 +1,58 @@
+"""Tests for src/generate.py — prefix encoding and position tracking."""
+
+import pytest
+
+from src.generate import _encode_prefix, _HOLD, _NC, _ROOT_START, _BASS_START, _BASS_END
+from src.tokenizer import TOKEN_TO_ID
+
+
+def test_encode_prefix_chord_only():
+    # "Cmaj7" in C major (shift=0) → ROOT_C QUAL_maj7 EXT_none BASS_root
+    ids, n_pos = _encode_prefix(["Cmaj7"], shift=0)
+    assert len(ids) == 4
+    assert n_pos == 1
+    assert ids[0] == TOKEN_TO_ID["ROOT_C"]
+    assert ids[3] == TOKEN_TO_ID["BASS_root"]
+
+
+def test_encode_prefix_hold():
+    ids, n_pos = _encode_prefix(["."], shift=0)
+    assert ids == [_HOLD]
+    assert n_pos == 1
+
+
+def test_encode_prefix_nc():
+    ids, n_pos = _encode_prefix(["NC"], shift=0)
+    assert ids == [_NC]
+    assert n_pos == 1
+
+
+def test_encode_prefix_mixed():
+    # "Abmaj7 . Fm7 . Db . Bbm ." — what the user tried and got a parse error on
+    symbols = ["Abmaj7", ".", "Fm7", ".", "Db", ".", "Bbm", "."]
+    # Ab major → shift to canonical C major = (0 - 8) % 12 = 4
+    shift = (0 - 8) % 12
+    ids, n_pos = _encode_prefix(symbols, shift=shift)
+    assert n_pos == 8                     # 8 bar positions
+    # Dots become single HOLD tokens; chords become 4-token groups
+    # Total tokens: 4 chords × 4 + 4 holds × 1 = 20
+    assert len(ids) == 20
+    # Every dot position must be a HOLD
+    hold_positions = [1, 3, 5, 7]        # indices in the symbol list
+    # Reconstruct expected token positions: chord at 0→tokens 0-3, dot→token 4, etc.
+    token_idx = 0
+    for sym in symbols:
+        if sym == ".":
+            assert ids[token_idx] == _HOLD
+            token_idx += 1
+        else:
+            assert _ROOT_START <= ids[token_idx] <= TOKEN_TO_ID["ROOT_B"]
+            assert _BASS_START <= ids[token_idx + 3] <= _BASS_END
+            token_idx += 4
+
+
+def test_encode_prefix_position_count_with_holds():
+    # Mixed prefix: 2 chords and 2 holds = 4 positions
+    ids, n_pos = _encode_prefix(["Am", ".", "G", "."], shift=0)
+    assert n_pos == 4
+    assert len(ids) == 2 * 4 + 2 * 1   # 10 tokens