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This momentum indicator compares the scope of latest gains to latest losses in an attempt to determine overbought and oversold assets based on the closing prices of a recent trading period. These averages are calculated using a number of subsets taken from a complete set of data. The Moving Average is used to indicate the direction of the current trend and helps provide clean data by removing daily price fluctuations found in the financial data. There is middle band, one upper band and one lower band.
The algorithm creates a moving channel of prices composed of an over sell channel and over bought channel.