Ulcer Index

Ulcer Index

The Ulcer Index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987,[1] and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period.

Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests. (The name pre-dates the discovery, described in the ulcer article, that most gastric ulcers are actually caused by a bacterium.)

The term Ulcer Index has also been used (later) by Steve Shellans, editor and publisher of MoniResearch Newsletter for a different calculation, also based on the ulcer causing potential of drawdowns.[2] Shellans index is not described in this article.



The index is based on a given past period of N days. Working from oldest to newest a highest price (highest closing price) seen so-far is maintained, and any close below that is a retracement, expressed as a percentage

 R_i = 100 \times { price_i - maxprice \over maxprice }

For example if the high so far is $5.00 then a price of $4.50 is a retracement of -10%. The first R is always 0, there being no drawdown from a single price. The quadratic mean (or root mean square) of these values is taken, similar to a standard deviation calculation.

 Ulcer = \sqrt { R_1^2 + R_2^2 + \cdots R_N^2 \over N }

The squares mean it doesn't matter if the R values are expressed as positives or negatives, both come out as a positive Ulcer Index.

The calculation is relatively immune to the sampling rate used. It gives similar results when calculated on weekly prices as it does on daily prices. Martin advises against sampling less often than weekly though, since for instance with quarterly prices a fall and recovery could take place entirely within such a period and thereby not appear in the index.


Martin recommends his index as a measure of risk in various contexts where usually the standard deviation (SD) is used for that purpose. For example the Sharpe ratio, which rates an investment's excess return (return above a safe cash rate) against risk, is

 Sharpe \, ratio = { Return - RiskFreeReturn \over standard \, deviation }

The ulcer index can replace the SD to make an Ulcer Performance Index (UPI) or Martin ratio,

 UPI = { Return - RiskFreeReturn \over ulcer \, index }

In both cases annualized rates of return would be used (net of costs, inclusive of dividend reinvestment, etc.).

The index can also be charted over time and used as a kind of technical analysis indicator, to show stocks going into ulcer-forming territory (for one's chosen time-frame), or to compare volatility in different stocks.[3] As with the Sharpe Ratio, a higher value is better than a lower value (investors prefer more return for less risk).


  1. ^ Peter Martin's Ulcer Index page
  2. ^ Pankin Managed Funds, client newsletter 3rd Quarter 1996, Questions and Answers
  3. ^ Discovering the Absolute-Breadth Index and the Ulcer Index at Investopedia.com

Further reading

Related topics


  • The Investors Guide to Fidelity Funds, Peter Martin and Byron McCann, John Wiley & Sons, 1989. Now out of print, but offered for sale in electronic form by Martin at his web site [1].

External links

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Ulcer Index - UI — An indicator developed by Peter G. Martin and Byron B. McCann that is used to measure the riskiness of investments such as securities, commodities, indexes or mutual funds. It is created by factoring in the depth and duration of drawdowns from… …   Investment dictionary

  • Ulcer — duodenal ulcer. Ulcers are healing wounds that develop on the skin, mucous membranes, or eye. Although they have many causes, they are marked by: # Loss of integrity of the area # Secondary infection of the site by bacteria, fungus or virus #… …   Wikipedia

  • Negative volume index — Nearly 75 years have passed since Paul L. Dysart, Jr. invented the Negative Volume Index and Positive Volume Index indicators. The indicators remain useful to identify primary market trends and reversals. In 1936, Paul L. Dysart, Jr. began… …   Wikipedia

  • Commodity Channel Index — The Commodity Channel Index (CCI) is an oscillator originally introduced by Donald Lambert in an article published in the October 1980 issue of Commodities magazine (now known as Futures magazine). Since its introduction, the indicator has grown… …   Wikipedia

  • Relative Strength Index — The Relative Strength Index (RSI) is a technical indicator used in the technical analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent… …   Wikipedia

  • Accumulation/distribution index — is a technical analysis indicator intended to relate price and volume in the stock market. Contents 1 Formula 2 Chaikin oscillator 3 Similar indicators 4 …   Wikipedia

  • Mass index — The mass index is an indicator, developed by Donald Dorsey, used in technical analysis to predict trend reversals. It is based on the notion that there is a tendency for reversal when the price range widens, and therefore compares previous… …   Wikipedia

  • Money Flow Index — (MFI) is an oscillator calculated over an N day period, ranging from 0 to 100, showing money flow on up days as a percentage of the total of up and down days. Money flow in technical analysis is typical price multiplied by volume, a kind of… …   Wikipedia

  • Peptic ulcer — Classification and external resources Deep gastric ulcer ICD 10 K25–K …   Wikipedia

  • Timeline of peptic ulcer disease and Helicobacter pylori — This is a timeline of the events relating to the discovery that peptic ulcer disease is caused by H. pylori . In 2005, Barry Marshall and Robin Warren were awarded the Nobel Prize in Physiology or Medicine for their discovery that peptic ulcer… …   Wikipedia