So wrote Richard Ney, who correctly called consecutive market tops and

bottoms
throughout the 1960’s 70’s and 80’s. He was the scourge of the SEC, and the
champion of the small speculator and investor.
Therefore, volume reveals the truth behind the numbers. Whether you are
trading in
manipulated markets such as stocks or forex, or ones such as futures where
we are
dealing with the major operators, volume reveals that manipulation and order
flow
in stark detail.
The market makers in stocks cannot hide, the major banks who set exchange
rates
for the foreign exchange markets, cannot hide. In the futures markets, which
is a
pure market, volume validates price and gives us a picture of supply and
demand
coupled with sentiment and the flow of orders as the larger operators move in
and
out of the markets.
In the next chapter we are going to look at volume in more detail, but I am
going to
start with an article I wrote for Stocks and Commodities magazine, many
years ago,
and which echoes the eight laws of Richard Ney. It was written long before I
came
across Richard and his books, but the analogy is much the same and I include
it here,
to further reinforce the importance of volume in your trading. I hope I am
getting the
message across, but if not, the following ‘parable’ may convince you! I hope
so.

Chapter Two
Why Volume?
The key is having more information than the other guy – then
analyzing it right and
using it rationally.
Warren Buffett (1930-)
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.