Ulcer Index

#volatility #drawdown #risk 

Inventor: Peter Martin and Byron McCann 

Measures the pain of holding a stock, not just its movement. It looks only at drawdowns – how far and how long price stays below its recent high – and combines depth and duration into one number. A stock that grinds steadily up scores near zero even if it moves fast; a stock that keeps crashing and recovering scores high. Best tool for comparing how stressful two investments are. 

Default period: 10 

Rising line indicates drawdowns deepening, pain increasing. Falling line indicates price recovering toward its highs. 

This is a risk measurement tool more than a signal tool. 

Useful readings: 

Near zero: Price at or near its highs, painless holding 

High and rising: Deep or long drawdown in progress 

Falling from a high level: Recovery underway 

Two stocks with equal returns: The one with lower Ulcer Index gave the smoother ride 

Spike to unusual highs: Panic conditions, often near capitulation lows 

Used in the Ulcer Performance Index: return divided by Ulcer Index, a pain-adjusted score 

Objective rules: 

Low-risk filter: Prefer stocks whose Ulcer Index stays below their peer group average. 

Recovery signal: Ulcer Index turns down from a spike high while price puts in a higher low. 

Portfolio rule: Rank holdings by return divided by Ulcer Index; review the worst scorers 

Capitulation watch: Ulcer Index at multi-year high on an index, start staged buying for the long term 

What makes it unique: 

It measures pain, not movement – only drawdowns count, and time spent down hurts as much as depth. It is the honest way to compare how hard two investments are to hold. 

Click here to learn more about the Ulcer index indicator.

The indicator can be found in the Indicator Digger section of TradePoint & RZone. There are ready conditions in tabular format that can be used to pick stocks based on the condition of this indicator on any charting technique.

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder of RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

 

 

The indicator is applicable to all types of charting. Calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.