This pattern is called the “Stick Sandwhich.” Before I talk about the psychology behind this pattern here are the resources in which I learned this pattern. Please read and watch the video I posted.
This is indeed a very rare pattern in technical analysis and not often recognized when it shows up in your study of charts. But, when it does show up, you must understand how to take advantage of it and to take entry and most importantly predetermine your stop loss. Especially on the DAILY chart such as the RETO example (DISCLOSURE: I am long RETO). And upon close examination on the 1HR time frame we see clearly the psychology of the bears vs the bulls.
We are sitting at support on the DAILY chart. If you study the 1HR time frame (or any time frame for that matter) you will notice the lack of selling pressure. And when you do see a big red candle with selling pressure, you must realize support is being maintained. Maintained by the bulls. There is a struggle in this sandwhich back and forth but the clear winner ends up being the bulls. You realize this will start to move up as soon as the bears start to leave the market. Look closely at this pattern, it is a tweezer reversal and a bullish engulfing pattern all in one. Also a DOJI too. The tweezer reversal pattern was validated by volume (in this case the lack of selling pressure and confirmed by a ton of buying pressure: both are forms of validation in in a bullish move). That point alone separates a great volume trader from the crowd. Again, the key was to notice the selling pressure was being absorbed by the bulls. Demand outweighed the supply imbalance here causing it to reverse. Once confirmed, buyers start to come back.
A good rule of thumb is when you see a pattern you like, break down the time frames smaller to study the epic battle between the bears and the bulls. You won’t know for sure who will win, but you will have a good idea! In this case, I was right! Hoorah and you know this pattern now.