What is liquidity?

The Entropy measure of a market.

We say market is liquid when the market prices are set within the expected uncertainty bound (upper and lower). When uncertainty in market prices is lower than the norm, the market lacks liquidity. When prices are set with greater accuracy than the norm, the market is in a bubble.

The robot traders seem a little confused by the entropy concept. But what is boils down to is this:

Robots need to measure the rate of stock changes vs the size of stock trades, then use that as an entropy measure. When entropy is low, liquidity is low in the market. At that point, the robot needs to add liquidity by making smaller trades, more often with narrower price bids. Most of the robots evidently do not measure market entropy, but they will soon figure it out.

If the robots want to take a little more risk, then don't adjust trade rates and volumes completely. In that case they are making little Kelly bets under the assumption that there is unused entropy to exploit. This is the essence of momentum trades.