This fractal organization provides liquidity throughout the price spectrum and even though price can jump between different levels that have been identified by traders to be significant under normal conditions, there will be several layers at which market activity can be conducted without discontinuities arising. If, however, there is a sudden change in price or the sudden emergence of a much more coherent and united view of the price direction then many market participants will begin to change their order flow and cancel previous limit orders. A major realignment of orders takes place and they will all be tending towards the one side of the market which is becoming the prevailing direction.
The scalpers who have been constantly caught out by trying to fade amove which does notwant to be faded, the position trader who is on the wrong side of the market and is seeing the position P&L steadily moving against him and the momentum traders who see a locomotive that is gaining speed are all persuaded to climb aboard. Naturally inclined skeptics and contrarians either join the emerging consensus as well or step aside deciding that there is an irresistible force at work.
Coherence and unequivocal opinion emerges and once certain price and volume thresholds are crossed then the degree of consistency in the estimation of near-term direction becomes not only something that the market notices but it becomes the phenomenon itself. At such points it can be noted that nothing influences price development more than the way that price is developing.
The extreme trending process becomes inherently self-aware and recursive in a process that is sometimes called positive feedback. In terms of the percolation model the normal fractious nature of the order book, by agents operating at different time frames with different price targets, starts to dissolve and large gaps open up in the granularity and position sizes of the order flow. Price changes not only percolate between time frames but there is an alignment across time frames as traders in all time horizons amend their orders. The percolation threshold expands beyond a critical level at which price movement becomes accelerated.
Read More : Percolation Model For Understanding Liquidity
