General impression is that chart reading is only for the short term. The truth is otherwise. While short-term reading can be done with charts, one can also set up an investment process using them. When combined with fundamentals, charts can improve outcomes.
Let me illustrate this with an example. For this purpose, I will use simple technical tools: trendlines, Fibonacci retracements and projections, and RSI and DMI indicators. These tools are available on most trading platforms and are widely known.
Since the focus is on creating wealth, I will use weekly charts to spot signals. This uses price action, support and resistance, targets and momentum patterns.
The stock chosen at random is Aurobindo Pharma. The company is India's second-largest listed pharma company by revenue and the largest generics company in the US. The stock trades below the industry average valuation. Institutional ownership stands at about 41%.
The company has delivered sales growth of 6.5% over the last three years. Return on equity stands at 10% over the same period. Dividend payout is about 10%.
2021 was the best year for the company, with profits at their highest. Since then, performance has remained flat. Based on these factors, some investors may have chosen another pharma stock.
Now consider the charts.
Chart 1 shows the situation in 2020-21. Covid supported pharma stocks. Prices rose sharply. By May 2021, prices had nearly tripled from the 2020 low of 392. The support trendline broke in July 2021 after RSI showed divergence. This combination could have signalled an exit for those who entered on improving fundamentals and price action.
After the reversal, the next step is to identify an end-of-reaction signal for a fresh entry.
Chart 2 shows that this opportunity did not appear until May 2023. The market appears to have priced in the end of Covid-led gains. A correction followed. Prices broke above the resistance trendline with a firm candle pattern from a higher bottom compared to 2020. Divergences appeared at the bottom. This indicated a fresh long position. There was no major change in financial numbers at that time.
The next chart shows progress from the May 2023 breakout. Prices rose to an all-time high of 1584 by September 2024. The move aligned with gains in the pharma index.
During this rise, the stock formed a divergence around December 2023 after a 140% return. There was no reversal signal, so no exit followed. A reverse divergence appeared in March 2024, which acted as a fresh buy signal. This added another 60% to returns.
Prices broke the long-term support trendline in November 2024, indicating a possible end to the trend. Momentum also weakened. RSI moved into the oversold zone quickly. This often signals a change in trend. This provided an exit for positions taken in March 2023, with returns of about 175%.
Chart 4 shows the next corrective phase. Prices moved in a range. A retracement of the earlier rise indicated a 50% level near 1000. The 61.8% level provided another support zone. This created a range of about 150 points to watch for reversal signals. RSI stayed within a 60-40 band, indicating consolidation.
Swing lows found support near RSI 40, showing improving trend strength.
By this stage, one year had passed since the peak. The consolidation may be nearing completion.
For the final phase, daily charts are used for clarity.
Prices broke above an intermediate resistance trendline in October 2025 after forming higher bottoms. Financial performance improved in March 2024 and March 2025. Earnings per share rose to 54 and 60 from 32 in 2023. Prices reflected these changes.
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The trend paused as results weakened in the first and second quarters of 2025. Daily charts showed weakness, but weekly charts did not indicate damage. Positions were held through this phase.
In February 2026, RSI formed a range shift pattern, indicating a possible end to the correction. Prices then rose with higher volumes. RSI moved above 60 on daily charts and later on weekly charts in March 2026, confirming the end of the correction from September 2024.
The next step depends on approach. An aggressive investor may enter at this stage. A conservative investor may wait for confirmation. Chart 4 shows a retracement of the decline from the 2024 high. This indicates a resistance range between 1300 and 1367. A move above this range can confirm the trend change.
This outlines how timing works in practice and how charts can help manage positions.
A buy-and-hold investor would have faced declines during 2021-23 and again between September 2024 and March 2026. Financial performance did not show strong improvement during these periods. Even the December 2025 quarter showed profit growth of about 5%. The stock may have been ignored.
Using basic techniques with consistency allows participation even when financial performance is not strong. Selection was based on:
- A sector with sustained investor interest.
- A stock that tracks or outperforms the sector index.
- Institutional ownership.
- Valuations below the industry average.
These are standard fundamental checks.
These were combined with breakouts, momentum signals, trend following, reversal signals and re-entry signals. This avoided periods of low returns. Over six years from March 2020 to March 2026, positions were held for about 36 months. A fresh entry signal has now appeared.
During periods without exposure, capital could be deployed elsewhere or held in interest-bearing instruments. This also avoids periods of decline and consolidation.
Market timing requires a method. Without it, investors may avoid it. The approach outlined here uses simple tools applied with consistency.
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Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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