Ulcer index - What You Should Know Before Using It In Trading Or Investing

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Ulcer Index

Risk management is a very important aspect of trading and the Ulcer Index is a pretty simple yet effective tool of evaluating your strategy. What is it?

The Ulcer Index (UI) is a volatility indicator. It measures both the depth/size of the drawdown and its duration of it.

It works like this:
You pick a trading period of N days and the Ulcer Index calculates what kind of drawdown you can expect over that period, for example, a 14-day period. The greater the value of the index, the longer it takes for a stock to get back to the former high.

Unlike many other tools and metrics to measure risk, the Ulcer Index only looks at the downside. Any gains or profits are “irrelevant”. We believe this is smart because most traders and investors abandon a strategy during the smallest drawdowns – exactly at the wrong time.

If you want to go into more detail about the Ulcer Index, please have a look at our article on our webpage.

More about the Ulcer Index in trading:
https://www.quantifiedstrategies.com/ulcer-index/

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