Ulcer Index

Overview

The Ulcer Index measures downside volatility by calculating the depth and duration of drawdowns from recent highs, providing a risk metric that focuses exclusively on the pain investors care about most. It was created by Peter Martin specifically for evaluating stock fund performance. Incorporate the Ulcer Index into your risk management alongside tools from our indicator guide library to protect capital during volatile markets.

How It Works

Percentage Drawdown = [(Close − Highest Close over N) / Highest Close over N] × 100. Ulcer Index = √[Sum of Squared Percentage Drawdowns / N]. Default period is 14. Higher values indicate deeper or longer drawdowns; lower values indicate smooth, steady returns.

Key Signals

• Rising Ulcer Index = increasing drawdown risk — consider reducing exposure.
• Low Ulcer Index = smooth uptrend with shallow pullbacks.
• Ulcer Index spiking while price is flat = hidden stress in the trend.

Common Mistakes

• Using the Ulcer Index as a trade signal — it's a risk-assessment metric, not an entry tool.
• Comparing Ulcer Index across very different asset classes without normalisation.
• Ignoring the Ulcer Index during bull markets — drawdowns happen without warning.