What is liquidity?

What it means

In a liquid market there are orders on both sides at every price and large trades are absorbed without much impact. In a thin market the same order walks the book, producing slippage and erratic candles. Liquidity is not constant — it varies by session, by instrument and by proximity to news.

Why it matters

In smart-money terminology, liquidity also refers to specific pools of resting orders: stops above a swing high, stops below a swing low, and the orders clustered at obvious levels. These are the places where a large participant can execute size without moving price against themselves, which is the mechanical reason price so often visits them.

What this changes in practice

For gold, the practical implication is timing. XAUUSD is thinnest around the daily rollover and in the late Asian session, where spreads widen and the same strategy produces meaningfully worse fills. Our engine restricts trading to a defined session window rather than running around the clock, which is a liquidity decision rather than a stylistic one — see gold trading sessions.