Ulcer Index Indicator

Ulcer Index Indicator

The Ulcer Index is an excellent indicator for measuring downside risk. It helps ensure your long positions remain profitable.

The Ulcer Index is quite a unique indicator. It was developed in 1987 by Peter Marin and Bryon McCann. The indicator is based on the assumption that uptrend momentum is profitable to you. It, therefore, measures the downside risk in both the period and depth of the price decline.

You can use the indicator to trade any instrument in any time frame.

How to Use the Ulcer Index Indicator
The indicator index increases significantly as the price moves from the recent high. This means the index will increase when the price plummets. It starts reducing as the prices move towards the recent high. The index hits zero if the currency pair makes a higher high with each candle.

You should be cautious if you are long on trade and the index starts increasing. If the index increases sharply, you might want to exit the trade or use tight risk management. However, if the index falls, you should consider holding the trade or adding more positions. Ideally, you will want the index to stay near the zero level. This indicates that the market is making new highs with each candle.

Trading Example

See how the indicator index moves flat near the zero level. However, the index increases as prices plummet, moving away from the recent high. The index falls when the uptrends resume and the price moves toward the recent.

Conclusion
The ulcer index is an excellent indicator for tracking the performance of your long position. It comes in handy if you are holding a trade expecting it to rise. You want to ensure the index is falling or moving near the zero line for your long position to be profitable.