Page 14 - A Complete Guide to Volume Price Analysis: Read the book then read the market

This is the article that I wrote for Stocks and Commodities magazine many years ago. I called it the Parable of Uncle Joe. I have made some minor
changes, but the essence of the article remains, as originally published.

One day after a particularly bad trading day, my Uncle Joe took me aside and consoled me with some hard facts about how the markets really
work. And he told me this story.

You see, my Uncle Joe owns a unique company, which has given him an insider's perspective on how stock price movement is managed.

His company, Widgets & Co., is the only company in the state that distributes widgets, and it does so under license from the government. It has
been buying and selling its unique widgets for many years. These widgets have an intrinsic value, they never break, and the numbeh="r in
circulation at any one time is much the same.

Being a reasonably clever man with many years of experience managing his business, my uncle soon realised that just buying and selling his
widgets to customers was, in fact, rather dull. The amount of money he made each time he bought and sold was quite small, and the number of
transactions per day was also low.

In addition, he also had all the running expenses of his office, his warehouse and his staff. Something would have to be done.

Having given the problem some thought, he wondered what would happen if he mentioned to a neighbour that widgets could soon be in short
supply. He knew his neighbour was a terrible gossip, so this was almost as effective as putting an advertisement in the local paper. He also
knew from checking his warehouse, that he had enough stock to meet any increased demand should his plan be successful.

The following day he met his neighbour outside, and casually mentioned his concerns, begging the man to keep it to himself. His neighbour
assured him that he wouldn't breathe a word; his lips were sealed.

Several days passed and widget sales remained flat.

However, after a week or so, sales started to pick up with more customers coming to the warehouse and buying in larger quantities. It seemed
his plan was starting to work and everyone was happy. His customers were happy as they knew that widgets would soon be in short supply, and
so their value would increase. Uncle Joe was happy because he was selling more widgets, and making more money every day.

Then he started to think.

With everyone buying his widgets, what would happen if he raised his prices? After all, he was the only supplier and demand was high at the
moment.

The following day he announced a price increase, but still believing there would soon be a widget shortage, his customers continued to buy in
ever larger quantities!

As the weeks passed he gradually increased his prices higher and higher, but still the buying continued. A few of his more astute customers
started to sell their widgets back to him, taking their profits, but Uncle Joe didn't mind as he still had plenty of willing buyers.

This was all good news for Uncle Joe, until one day, he suddenly realised with some alarm that his warehouse was now looking very empty
indeed. He also started to notice that the volume of sales each day was decreasing. He decided to keep moving prices up, so everyone would
think that the situation was unchanged.

But now he had a new problem. His original plan had been too successful. How on earth was he going to persuade all his customers to sell
widgets back to him, so that he could continue in business?

He pondered this problem for several days with no clear solution. Then, quite by chance, he met his neighbour again in town. The man drew
him to one side and inquired whether the rumour he had heard was true? Inquiring into what that rumour might be, Uncle Joe learned that his
neighbour had heard that another, much bigger widget distribution company was setting up business in the area.

Being clever, Uncle Joe realised that providence had given him the answer on a plate. Appearing crestfallen, he admitted that the rumour was
true, and that his business would suffer badly. More importantly, widget values wenotet valure likely to drop dramatically in price.

As they parted company, Uncle Joe chuckled to himself at having such good fortune, and such a helpful gossip for a neighbour.

Within days he had queues of customers outside his warehouse doors, begging him to buy back their widgets. With so many people selling, he