The loop
The other three constitutive conditions — finitude, focality, cyclicity — produce visible regularities. Liquidity gets consumed and price ranges, then expands. Participants converge on the same levels. Order flow concentrates at the same times of day. These regularities are observable.
And the moment they are observable, they are tradeable. A trader notices that sweeps of the weekly high tend to revert. She starts trading those sweeps. So does everyone else who noticed. Their orders concentrate more liquidity at the weekly high. The sweeps become more pronounced. The pattern gets stronger because people learned it — until enough capital crowds in that it starts to break, and the edge decays. Either way, the observation changed the thing being observed.
This is a feedback loop between the macro and the micro. The emergent properties of the system modify the behavior of the components, and the modified components produce new emergent properties. There is no bottom level where everything finally gets explained. The explanation lives in the relationship between the levels.
Soros, made more precise
This is what George Soros named reflexivity: the idea that participants' beliefs do not merely reflect the market — they help constitute it. The version here sharpens one thing. It is not only that beliefs move prices. It is that the emergent structure of the system causally acts on the agents who constitute the system, in a continuous cycle, so that "the fundamentals" and "what people believe about the fundamentals" stop being cleanly separable.
The mechanism is not mystical. It has been modeled. De Long, Shleifer, Summers and Waldmann (1990) showed formally that rational, informed traders who anticipate the feedback from trend-following ("positive feedback") traders can amplify moves rather than correct them — destabilizing speculation that is individually rational and collectively pattern-reinforcing. That is reflexivity with the math attached.
Why it matters for the trader
Reflexivity is why no edge is permanent and why understanding why a pattern exists matters more than the backtest. A pattern with a reflexive feedback behind it can strengthen as it becomes known, then degrade as it becomes crowded. If you only have the backtest, you cannot tell which phase you are in. If you understand the loop, you can at least ask the right question: is this edge being reinforced by who is watching it, or saturated by them?
You cannot eliminate reflexivity. You cannot stop participants from observing and learning from the system they participate in. The only way to remove it would be to remove the participants — at which point there is no market.