Final answer:
A trading channel does not have to encompass all of the price action between the trend lines, but instead is used to illustrate support and resistance levels within a certain range. These channels aid traders in determining potential entry and exit points but are not infallible predictors.
Step-by-step explanation:
A channel in the context of technical analysis and trading does not have to contain all the price action between the trend lines. Instead, a channel represents areas where the price of an asset tends to find support and resistance.
Channels can be horizontal, ascending, or descending, and serve as a visualization of the price range the asset trades in over a certain period. It's important to note that while channels can be helpful in identifying trends and potential buy or sell points, they are not always perfect predictors of future price movements.
When constructing a channel, a trader draws two parallel lines that bracket the price action. The upper line connects the high points of the price action, which forms the resistance, while the lower line connects the low points, which forms the support.
A break above or below a channel can signal a potential trend change. It's worth mentioning that while a channel should capture the majority of the price action, some price movements might breach the channel without indicating a clear trend shift.
Your complete question is: A channel doesn't have to contain all of the price action in between the trend lines