How to increase the position when the monthly line breaks through the annual line + weekly W bottom formation + daily gap high opening?

A monthly golden cross, weekly W bottom, and daily gap-up together signal a strong bullish reversal, warranting increased position size with strict risk management.

Jul 29, 2025 at 01:49 pm

Understanding the Monthly Line Breaking Through the Annual Line

When the monthly moving average line crosses above the annual moving average line, it signals a potential long-term bullish shift in market sentiment. This crossover is often interpreted as a golden cross on the monthly chart, indicating that the medium-term momentum is overtaking the long-term trend. Traders pay close attention to this event because it may mark the beginning of a sustained uptrend. The monthly golden cross is considered more reliable than shorter-term crossovers due to the reduced noise and stronger confirmation from higher timeframes. To confirm this signal, traders should ensure that the monthly candle closes above the 12-month (annual) moving average, with volume supporting the breakout. It’s also essential to check whether the price has been consolidating below the annual line for several months before the breakout, as prolonged consolidation adds significance to the move.

Identifying the Weekly W Bottom Formation

A W bottom on the weekly chart is a reversal pattern characterized by two distinct lows at approximately the same price level, separated by a rally that forms the middle peak of the “W.” This pattern suggests that selling pressure has been exhausted and buyers are stepping in at the same support level twice. For the W bottom to be valid, the second low should not break significantly below the first, and the breakout should occur on increased volume when price moves above the intermediate peak (the neckline). The confirmation of the W bottom happens when the price sustains above the neckline for at least one full week. Traders often measure the projected price target by adding the depth of the W (from the neckline to the lowest low) to the breakout point. This formation, when aligned with the monthly golden cross, strengthens the case for a major bullish reversal.

Interpreting the Daily Gap-Up Opening

A gap-up opening on the daily chart occurs when the current day’s opening price is significantly higher than the previous day’s closing price, with no trading activity in between. This often reflects strong positive sentiment, possibly driven by news, earnings, or macroeconomic factors. In the context of the monthly golden cross and weekly W bottom, a gap-up serves as a confirmation of bullish momentum. Traders should analyze the size and volume of the gap. A full gap (where the entire price range is above the previous day’s range) on high volume is more significant than a partial gap. Additionally, the gap should ideally remain unfilled in the short term, indicating sustained buying pressure. Monitoring whether the price holds above the gap level during intraday trading is crucial, as a filled gap may weaken the signal.

Strategies for Increasing Position Size

When all three conditions align—monthly golden cross, weekly W bottom, and daily gap-up—traders may consider increasing their position size. The following steps outline a structured approach:

• Verify all three signals independently before taking action. Ensure the monthly close is above the 12-month MA, the weekly chart shows a confirmed W bottom breakout, and the daily chart exhibits a strong gap-up on volume.
• Wait for the daily candle to close above the gap to avoid false breakouts. Intraday volatility can lead to premature entries.
• Use a tiered entry strategy. Allocate a portion of the intended position (e.g., 30%) on the first confirmation day, another portion (e.g., 50%) if the price holds above the gap for two consecutive days, and the remainder (e.g., 20%) on a retest of the gap as support.
• Set stop-loss levels below the neckline of the W bottom or below the lower low of the W formation, whichever is lower. This protects against pattern failure.
• Adjust position size based on account risk tolerance. Never risk more than 1–2% of the total portfolio on a single trade, even with strong confluence.

Technical Tools and Indicators to Confirm the Setup

To enhance confidence in the trade setup, several technical tools can be used alongside the primary signals:

• Volume analysis: Rising volume on the monthly breakout, the W bottom breakout week, and the gap-up day confirms participation.
• Relative Strength Index (RSI): On the weekly chart, RSI should move above 50 after emerging from oversold territory (below 30), indicating momentum shift.
• MACD on weekly chart: Look for a bullish MACD crossover (signal line crossed by MACD line from below) coinciding with the W bottom breakout.
• On-chain data (for cryptocurrencies): Increasing exchange inflows at the lows may indicate accumulation, while decreasing supply on exchanges during the gap-up suggests holding.
• Order book depth: A strong bid wall forming near the gap level on major exchanges can signal institutional interest.

Risk Management and Trade Execution

Proper execution is critical when increasing position size under this confluence. Traders must avoid emotional decisions and stick to predefined rules.

• Avoid FOMO (fear of missing out) triggered by the gap-up. Entering without confirmation increases risk.
• Use limit orders to enter on pullbacks rather than market orders during fast-moving price action.
• Monitor for divergence on shorter timeframes (e.g., 4-hour RSI overbought) that may indicate short-term exhaustion.
• Scale out profits as price reaches projected targets from the W bottom. For example, sell 30% at 1x the depth, 30% at 1.5x, and 40% at 2x.
• Keep a trade journal documenting the rationale, entry points, and adjustments made. This aids in refining future decisions.

Frequently Asked Questions

What if the gap gets filled within two days?

If the daily gap is filled quickly, it may indicate weak follow-through. In such cases, the bullish signal weakens. Traders should reassess the setup, especially if the price closes below the gap zone. A retest of the W bottom neckline becomes critical. If that support also breaks, the trade thesis is invalidated.

How do I confirm the annual line on the monthly chart?

The annual line is typically the 12-period simple moving average (SMA) on the monthly chart, representing 12 months. Ensure the charting platform is set to monthly candles. Confirm that the current month’s candle has closed above this SMA. Some traders use the 200-week MA on the weekly chart as an alternative long-term reference.

Can this strategy be applied to altcoins?

Yes, but with caution. Altcoins often exhibit higher volatility and may have less reliable volume data. Ensure the altcoin has sufficient liquidity and trading history. The W bottom should be more pronounced, and on-chain metrics (like wallet growth or staking activity) can add credibility to the reversal.

Should I use leverage when increasing position under this setup?

Leverage amplifies both gains and losses. Given the multi-timeframe confirmation, some traders may use moderate leverage (e.g., 2x–3x), but only if stop-losses are strictly enforced. High leverage (5x or more) is discouraged due to the risk of liquidation during short-term pullbacks, even in strong trends.