I did some thinking about Joel Kruger’s “Power of 27” Concept today. As most of you know, I spend most of my time thinking about why and when trends come to an end in the currency markets. 

You can click here (http://bit.ly/f8XeTT) to read more about Commander Joel's thoughts on the subject. But, frankly, I'm going to describe it all below, so just keep your eyes glued to this screen.

[You can follow Herr Joel on Twitter here: @JoelKruger, and Jamie Saettele here: @jamiesaettele]

Mr. Joel believes that when a currency pair is able to close above its daily low for more than 27 consecutive days, that's the shiz-bomb fancy-tastic thing of all time (and that its trend might be ready to end and reverse). At first I thought Mr. Joel was full of shit, but then I decided to give him a break, just in case his dad was Freddy Kruger, because that would suck.

Let’s clearly restate Mr. Joel’s (possibly) ridiculous proposition before we move on:

An upward trend might be due for a significant reversal if the pair closes above its previous day's low for 27 consecutive days.

At that point, he believed, it might be likely that the pair would reverse direction. This has proven true, within a few numbers of 27, a few times on the daily chart. Mr. Joel and Jamie Saettele (also at Dailyfx.com) together did some cool research in October to show how the EUR/USD might be due for a significant decline (obviously they were right, because the EUR/USD got whumped in the mouth over the last 30 days).

Before we continue, you should take a look at this picture of Jamie playing in the pool while in college. Most people don’t know this, but Jamie is completely deaf and needed to wear “water earmuffs” while swimming.

Anyway, Senor Joel’s “Power of 27” theory sounded significantly crazy to me, so I decided to spend two hours and graph what this whole business looks like in Excel. And I wanted to see what it looked like over a much longer stretch of time, or at least a larger sample set. A few examples of the daily chart is interesting. But what about more data?

Specifically, here are the questions I set out to answer:

What would happen if we looked at this theory over the course of 60,000 5 minute candles during a full year of time? Would the number 27 (or something close to it) hold up?

What if we looked at consecutive period closes below the previous day’s high, to see if a downward trend would be due for a reversal?

I put 65,000 candles of data from the 5 minute EUR/USD into Excel, and went to work. You can download the full spreadsheet here:

http://www.robbooker.com/free/KrugerClose.xlsx

Once I got the data into Excel, I asked Excel three questions:

Why does Jamie look so sexy in the pool?
Once a trend is over-extended (reaches 27 or some similar number), are there profit trades to take?What’s the max profit that could come from a trade like this?

Here is a summary of my initial observations:

The “Power of 27” is actually the “Power of 17” on the 5 minute charts.

The “Power of 17” is worth considering for trend-reversals

I named the “Power of 17” the “Kruger Close” because it gives credit to its inventor

A much more detailed summary of my observations is contained in a video. Watch it now. Or your bowels will explode:

Full-sized video (for big monitors, just click "view on screencast.com," and then on screencast, choose "view full size"):

View on screencast.com »

Smaller video (embedded below):