What is the Ulcer Index?
In one line: The Ulcer Index measures how deep and how long prices or an account stay below their last high, squaring each dip so deeper drops count more.
The idea
Max drawdown only looks at the single worst drop. But 2 rough months feel very different from 2 rough years.
The Ulcer Index counts every period spent below the last high. Deep and long dips raise it. Quick, shallow dips barely move it.
It was developed in 1987 by Peter Martin and Byron McCann. The name is a joke: it measures the stress that might give you an ulcer.
A simple example, step by step
An account's drop from its last high, at the end of each of 5 weeks:
0%, −2%, −5%, −3%, 0%
Step 1. Square each drop. 0, 4, 25, 9, 0.
Step 2. Average them. (0 + 4 + 25 + 9 + 0) ÷ 5 = 38 ÷ 5 = 7.6.
Step 3. Take the square root. √7.6 ≈ 2.76.
Now a second account with the same worst drop of 5%, but it stays there: 0%, −5%, −5%, −5%, 0%. Squares: 0, 25, 25, 25, 0. Average 15. Square root ≈ 3.87.
Same max drawdown. Higher Ulcer Index, because the pain lasted longer. A math example, not a promise.
Why it matters
The Ulcer Index matches how a rough stretch actually feels. Long, deep dips are the ones that make people break their rules or quit.
Squaring the drops makes deep ones count much more than shallow ones. A 10% dip counts 4 times as much as a 5% dip.
Unlike standard deviation, it ignores upside swings. Only time below the high counts.
A common mistake
Comparing Ulcer Index values built on different periods. Daily, weekly and monthly data give different numbers for the same account. Only compare values worked out the same way. And a low reading from a short, calm period may not last. See Drawdown.
You don't need the exact number to use the idea. In your journal, note how many trades or weeks each dip lasted, not just how deep it went.
Questions
What does a high Ulcer Index mean?
Prices or the account spent a lot of time well below their last high. Higher means deeper or longer drops.
What's the difference between the Ulcer Index and max drawdown?
Max drawdown is the single deepest drop. The Ulcer Index blends the depth and length of every drop over the period.
Is the Ulcer Index an indicator I can add to a chart?
Often, yes. Look for it in your platform's indicator list or community scripts. Check how many bars it looks back, since that changes the value.
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