The Ulcer Index is a very unique index. The Ulcer Index was created by Peter Marin, Brian McCann in 1987. It assumes that you are in an uptrend that is profitable. This indicator measures the duration and depth of downside risk of price declines.
How to use the Ulcer Index indicator
As prices fall from their recent highs, the indicator index will rise. If the price falls, the index will rise. As the price moves towards its recent high, it starts to fall. If the currency pair has a higher peak on each candle, then the index will reach zero.
If you are long in a trade and the index starts to rise, this is a signal to be cautious. If the index is rising rapidly, you may consider exiting the trade or tightening your risk management. However, if the index falls, you can hold the trade or add more positions. This is ideal in order to keep the index at the zero level. This means that each candle of the market will reach new heights.
You can see how the indicator index stays flat at the zero level. As the price falls, the index moves away from its recent highs. However, when the price falls, it increases again. When the uptrend returns and the price moves towards the recent past, the index decreases.
Conclusion
The Ulcer Index can be used to track the performance of long positions. It is a useful indicator if you expect the trade to go up. In order to make your long position profitable, you need to make sure that the index does not move towards the zero line.
