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Unlike the majority of stock market risk and volatility measures (such as the Standard deviation), the Ulcer Index was designed, by Peter Martin in 1987, to calculate the volatility in the downward direction only. This technical analysis indicator (Ulcer Index) was first introduced in a 1989's book called "The Investors Guide to Fidelity Funds".
The fact that traders usually doesn't mind upward movement of the market has lead to the development of the Ulcer Index, which measures volatility in the downward direction (It ignores volatility that occurs in the up direction). It does so by calculating the root mean square of the security or strategy retracements/drawdown (The percentage decrease of a security or strategy from a previous high).
The Ulcer Index is usually used as a measure of a trading strategy risk, but it can also be used as a trading indicator for charting or as a trading rule with other technical analysis indicators to generate buy and sell signals. The higher the Ulcer Index is, the more downside volatility there is in the market.
In the Ulcer Index trading indicator, whose name is "Ulcer", you can specify the past period that is used to perform the risk measure calculation, Example: ulcer(300).
Note that the Ulcer Index is available in the simulation report of the QuantShare backtester, along with the standard deviation, Sharpe ratio, Sortino ratio, Ulcer Performance Index...
In the trading system report, the Ulcer Index is calculated based on the strategy equity (instead of the close price) and on all the available strategy data.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
