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.
More Volatility Indicators
Keltner Channels
Keltner Channels plot an EMA with upper and lower bands based on <a href="/academy/indicators/atr" class="text-primary hover:underline">ATR</a>, producing smoother envelopes than <a href="/academy/indicators/bollinger-bands" class="text-primary hover:underline">Bollinger Bands</a> — and the two are frequently used together for the TTM Squeeze setup. This combination identifies low-volatility compression zones that precede explosive <a href="/guides/trade-breakouts" class="text-primary hover:underline">breakout</a> moves in any market. Apply Keltner Channels on <a href="/tools/platforms/tradingview" class="text-primary hover:underline">TradingView</a> and overlay Bollinger Bands to spot squeeze conditions with a single glance.
Mass Index
The Mass Index identifies potential trend reversals by measuring the narrowing and widening of the range between high and low prices, generating a "reversal bulge" signal when the range first expands then contracts. It is a unique contrarian tool for <a href="/market/stocks" class="text-primary hover:underline">stock</a> and <a href="/market/forex" class="text-primary hover:underline">forex</a> traders. Combine Mass Index reversal signals with momentum tools from our <a href="/academy/indicators" class="text-primary hover:underline">indicator guide library</a> for higher-probability entries.
Price Envelopes
Price Envelopes plot fixed percentage bands above and below a <a href="/academy/indicators/simple-moving-average" class="text-primary hover:underline">Simple Moving Average</a>, creating a straightforward volatility channel for identifying overextended price moves and potential reversal zones. They are among the simplest band indicators available and work well in ranging <a href="/market/forex" class="text-primary hover:underline">forex</a> and <a href="/market/stocks" class="text-primary hover:underline">stock</a> markets. Compare Price Envelopes with <a href="/academy/indicators/bollinger-bands" class="text-primary hover:underline">Bollinger Bands</a> in our <a href="/academy/indicators" class="text-primary hover:underline">indicator guide library</a> to decide which suits your style.
Historical Volatility
Historical Volatility measures the annualised standard deviation of past log price returns, giving traders a statistical benchmark for how volatile an asset has been. It is essential for options pricing and risk management in <a href="/market/stocks" class="text-primary hover:underline">stocks</a> and increasingly in <a href="/market/crypto" class="text-primary hover:underline">crypto</a> derivatives. Use our <a href="/tools/calculators/position-size" class="text-primary hover:underline">position size calculator</a> to incorporate HV into your risk management workflow.