All the percolator-type coffee pots I've used had a filter basket at the top for the coffee and a water reservoir below. A tube connected the two with a heating element below the lower end of the tube. Liquid in the reservoir flows into the heater, boils up the tube, bubbles out over the coffee, drips through the filter and back into the reservoir.
The most common problem was the seating at the bottom between the tube and the heater. Most of these were monstrous carafe w/ spigot at the bottom type things, but on the one top-pour I've encountered, we took out the used grounds before serving the coffee. In any event, I honestly am not following how your particular machine is supposed to work. What's the manufacturer and model?
Percolator coffee is ground coarser than automatic drip, but not as coarse as french press. If your pot uses regular paper coffee filters and not an installed filter basket, this question is more one of strength/bitterness than of not having coffee grounds in your coffee.
The grounds should be shaken so they evenly cover bottom of the filter. It's not necessary to tamp them down... this isn't espresso and pressurized steam.
The stove should be on hot enough to boil water.
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Simple Machines in Higher Dimensions
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