Trading Chinese stocks may become a bit dicey due to mounting skepticism about the accuracy of financial data provided by Chinese companies trading as American Depository Receipts in the USA. If financial data provided by Chinese companies, or any companies, trading on US stock markets is suspect this renders fundamental analysis of such stocks worthless or frankly misleading. If stocks trading in the USA misrepresent their financial data they are subject to sanctions by the SEC. However, when trading Chinese stocks as level I American Depository Receipts, traders must recognize that Level I ADR’s do not require substantial financial disclosure. Level I ADR’s are traded over the counter and have minimal reporting requirements with the SEC. No quarterly reports or annual reports are required although such stocks must be listed on at least one foreign exchange and the company must publish an annual report in English on its web site. The report must comply with the laws of the home country but not the regulations for stocks in the USA. Foreign stocks available as Level II and Level III American Depository Receipts have stricter reporting requirements. Ideally, with accurate financial data available to traders and investors both fundamental and stock technical analysis will help gain profits. Traders using Candlestick charts will be able to accurately and profitably anticipate market sentiment. Of valid concern for stock traders interested in trading Chinese stocks are reports of inaccurate financial data even at higher level ADR’s. Those trading Chinese stocks will want follow market sentiment carefully with Candlestick analysis.
A concern of some investors is the state of Chinese banks. Many consider the relationship between banks in China and the Chinese government to be too close. If these institutions are over extended with poor loans China could see a banking disaster similar to what happened in the USA and required a bailout of the industry. Long term investing in Chinese banks and other Chinese stocks trading in the USA might seem uncertain at this time, in light of questions about the accuracy of financial data. However, trading Chinese stocks might still be profitable. Using Candlestick analysis traders can anticipate changes in market sentiment. By buying puts on these stocks in options trading or by selling short traders can profit if the current concern about trading Chinese stocks turns into a rout of these equities.
Our point in writing this article is not to recommend trading Chinese stocks or avoiding them. The point is that by doing a bit of fundamental analysis and keeping up with the stock market news traders can spot stock trading opportunities. While those solely interested in long term investing may sell stock in such a situation stock traders can use Candlestick pattern formations to follow market sentiment and trade in such a way as to profit from rising or falling stock prices. Whether one is trading Chinese stocks and concerned about the accuracy of financial reports or trading any US stocks listed on the NYSE or NASDAQ, using clear and easy to read Candlestick signals can guide traders to profits in any market.
