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Thanks for submitting this issue. Please also check if it is already covered by an existing one, like:

• [folding] show folding actions at the end of folding range as well (#60670)
• [folding] Move line up/down should skip over folded regions or folded sections (#63972)
• [folding] clicking on on line number of folded line should select full folding range (#59657)
• [folding] show comment first line for folded sections (#31966)
• [folding] Add setting to allow to show first N lines (not 1) of folded block (#69078)

Is there any scope for community contributions to this feature request?

PRs are always welcome, but I think this is not an easy fix.
https://github.com/microsoft/vscode/blob/master/src/vs/editor/contrib/folding/folding.ts is the starting point.
... are done with css :after decorations.

Being able to remove the fold indicator would also be really nice.
Modes like markdown could auto fold the link part of a link and unfold them as the cursor moves over a link to help declutter the visualization of the document being edited.

Emacs org mode does this for links and it is pretty slick.

I believe that before implementing this we need to answer a question: should we replace the whole first line or just the ... placeholder?

In Visual Studio #region

folds to

but function body

folds to

I know that Visual Studio operates with char-ranges instead of line-ranges, but in VSCode we only have line-ranges, so we have to deal with it and we need to decide what will be the behavior for line-folding.

Hey, wanted to take a stab at this issue since it would be really helpful for the extension we are working on, but I don't see a help wanted label. So wanted to clarify the #70794 (comment) above, can we provide a community PR for this?

@mtbaqer Yes, PR's are welcome

Great. Thanks for the clarification. One more question, I assume startCharacter can be be any value besides 0 as well? To replace parts of the first line? Or is there something in the current implementation that would stop that and we need to treat 0 as a special input?

VS Code only supports full lines to be folded. So startCharacter is ignored.

It should always show the first line. I'm folding tests and this:

        it('includes messages within the specified date range', async function () {
            const params = {
                 ....
            }
        })

Folds to this:

    it(...)

which isn't very useful.
It should also show the contents when I hover over the line without having to unfold it.

@phazei looks like you have issue with some extension and should report it in extension's repo, because that not how VS Code folding works.

VS Code folds test function (not call of it) and keeps its first and last lines as is and test nave if visible

@IllusionMH ah, yeah, my bad, that does work proper without the extensions. I had an extension that would provide more context but apparently doesn't in some cases.