How Follow-On Buy Points Gave Additional Chances To Buy PayPal During Its 100% Run

PayPal’s (PYPL) over-100% advance in 2020 had its best start with a breakout in May of that year, but follow-on buy areas offered more chances to buy this big winner. Knowing how to identify those secondary buy areas is just as important as initial buy points.




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Follow-on buy areas are primarily rebounds from pullbacks to the 10-week moving average and three-weeks-tight patterns. Both serve as a way to buy a stock you missed on the first entry, or to add shares to bulk up a position. Here’s how those chart formations worked in PayPal stock’s big run.

In mid-February of 2020, PayPal shares topped out at 124.45 ahead of the coronavirus stock market crash. The stock descended as much as 34%, eventually bottoming at 82.07 on March 23. During the stock’s rebound, PayPal formed a cup base.

On May 5, PayPal broke out above a 124.45 buy point. (1)

Additional Buy Points

After a successful breakout, investors should always be on the hunt for additional buy points. When adding to a position, be sure to buy fewer shares than the overall position to avoid a dramatic rise in the average cost.

On May 7, the company reported improving business trends amid the global coronavirus lockdown, even though earnings, revenue and total payment volume missed estimates. In response, PayPal stock soared 14%, giving those who bought at the breakout a 17% gain in just two days.

The first follow-on entry appeared in early June, when the stock created a three-weeks-tight formation (2). These occur when the weekly stock price closes with little chance over three straight weeks. The buy point is the highest price in the pattern, or 160.89 in PayPal’s case. On June 16, shares topped that buy point.

Another follow-on buy point occurred in mid-July, when the stock pulled back to its 10-week moving average. (3) The 10-week moving average serves as a key area of potential support because institutions will use that moving average to add shares to existing positions.

To identify the buy point, use the value of the 10-week average the week shares start to rebound. For PayPal, the entry was around 163.

Until the stock started a new base in September, it rallied 34% from the three-weeks-tight and 32% from the 10-week pullback.

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