Can I follow up with the daily line gap + the hourly line shrinking and filling?

A daily line gap in crypto trading occurs when an asset opens at a significantly different price than its previous close, often due to news or sentiment shifts, creating potential support/resistance zones.

Jul 03, 2025 at 06:50 am

Understanding the Daily Line Gap in Cryptocurrency Trading

In cryptocurrency trading, daily line gaps refer to the price differences between the closing price of one candlestick and the opening price of the next. These gaps often occur due to market news, macroeconomic events, or sudden shifts in investor sentiment outside regular trading hours. Identifying daily line gaps is crucial for traders who rely on technical analysis to make informed decisions.

For example: If Bitcoin closes at $60,000 on Friday and opens at $61,500 on Monday, a positive gap has occurred. Conversely, if it opens at $58,500, that would be a negative gap.

These gaps can serve as potential support or resistance levels. Traders often look for opportunities when the price returns to fill these gaps, especially if the gap occurs during low-volume periods.

What Is Hourly Line Shrinking and Filling?

The hourly line shrinking and filling phenomenon refers to situations where short-term volatility contracts within an hourly chart and then expands again, often returning to the area of the previous gap. This behavior suggests consolidation before a potential breakout or retracement.

Shrinking candles indicate reduced market activity or hesitation among traders. When this happens after a significant move, it may signal a temporary pause rather than a reversal. Filling, in this context, means the price revisits the gap zone, which could offer strategic entry points.

Traders typically use moving averages or Bollinger Bands to identify contraction phases and anticipate when the market might "fill" the gap.

Combining Daily Gaps with Hourly Contraction Patterns

Using both daily line gaps and hourly line shrinking and filling allows traders to filter out noise and focus on high-probability setups. The strategy involves:

• Identifying a recent daily gap.
• Observing hourly charts for signs of contraction.
• Waiting for the price to return and fill the gap.

This method works well in markets like Ethereum or Solana, where volatility tends to spike and then settle back into range-bound behavior. It’s essential to wait for confirmation through volume spikes or candlestick patterns before entering a trade.

How to Set Up Your Chart for This Strategy

To effectively apply this strategy, follow these steps:

• Set your primary chart to daily intervals. Look for clear gaps formed over the past 24–72 hours.
• Switch to the hourly chart and enable Bollinger Bands or ATR (Average True Range) indicators.
• Use horizontal lines to mark the gap zones for easy reference.
• Overlay volume indicators to assess participation during retracements.

Once these tools are in place, you’ll be able to visually track when the price starts showing signs of contracting and potentially filling the gap.

Entry Signals and Risk Management

When the price begins to approach the gap zone on the hourly chart, watch for the following signals:

• Candlestick reversal patterns such as engulfing candles or hammer formations.
• Volume increasing near the gap zone, indicating renewed interest.
• Price action forming higher lows or lower highs around the gap level.

It's important to set stop-loss orders just beyond the gap level to protect against false breakouts. Position sizing should align with your risk tolerance, ideally not exceeding 2% of your portfolio per trade.

Avoid entering trades solely based on gap proximity without confirming signals from other indicators or price behaviors.

Common Pitfalls to Avoid

Many traders fall into traps when using this strategy. Here are some common mistakes:

• Entering too early before the price shows signs of filling the gap.
• Ignoring broader market conditions such as major news or macro trends.
• Relying solely on historical gaps without factoring in current momentum.
• Overtrading multiple gaps simultaneously without proper validation.

By being aware of these pitfalls, traders can maintain discipline and avoid emotional decision-making.

Frequently Asked Questions

Q: What time frame is best for identifying daily line gaps?

A: The daily chart is ideal for spotting gaps, but it's also helpful to cross-reference with weekly data to ensure the gap isn't part of a larger trend.

Q: How long does it usually take for a gap to be filled?

A: There's no fixed timeline, but most gaps in crypto tend to get filled within a few days to a week, depending on market liquidity and volatility.

Q: Can I use this strategy with altcoins?

A: Yes, many altcoins exhibit similar gap behavior, especially those with moderate to high trading volumes like Cardano, Avalanche, or Chainlink.

Q: Do all gaps get filled eventually?

A: No, not all gaps close. Some become long-term support or resistance zones. It's important to monitor how the price reacts near the gap rather than assuming it will always fill.