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The Ulcer Performance Index is a measure of investment or trading strategy performance and is constructed by dividing the excess return by the Ulcer Index. The calculation is almost the same as in the Sharpe Ratio, which is computed by dividing the excess return (Total strategy return minus the risk free rate) by the strategy or investment standard deviation.
In the Ulcer Performance Index, the Ulcer Index, which is a measure of risk (It measures the duration and depth of drawdowns), replaces the standard deviation. Measuring investment performance using the Ulcer Index has many advantages. First, unlike the standard deviation the Ulcer Index calculates downward changes only (The bad risk or the risk that really matter to traders and investors). Second, the Ulcer Index calculation takes into account the strings of losses that may result in significant drawdowns.
The Ulcer Performance Index can be found in the simulator report. You can also use the current technical analysis indicator to create trading rules based on the Ulcer Performance Index of individual securities.
Example:
rule = UlcerPI(5, 250) > 2;
In the first parameter, I have specified the risk-free rate, while in the second parameter I have set the look back period or the number of trading bars that is used to calculate the total return and the Ulcer Index.
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.
