Forex Questions and Answers - FXAnswer

Ulcer Index Measures Investment Risk and Risk-Adjusted Performance.

Unlike standard deviation, the financial industry's benchmark way of measuring the risk of a stock, which equally weights both violent increases to the upside (upside volatility) and violent decreases to the downside (downside volatility), the Ulcer Index takes a more enlightened approach that states that investors only care about the downside risk of a stock, not the upside risk (upside risk is good, it is equivalent to profits. . . if you are long stock, that is)

Source(s):

onlinetradingconcepts.com

A volatility measurement of drawdown. It is unaffected by upside volatility. Money market funds will always have a UI = 0.0. Ultra-short bond funds (which have a little bit of downside) will have a have a UI that is about 0.1 ( or even rounded down to 0.0). All investment strategies have as a goal the reduction of UI.

Source(s):

http://www.direxionfunds.com/glossary.html

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.

Source(s):

http://en.wikipedia.org/wiki/Ulcer_Index

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 recent peaks. A large UI value indicates that the security represents undue risk and an investor who holds it will likely need to wait longer for the investment's price to climb back to its recent highs.
Investopedia explains Ulcer Index - UI
This tool is often used in conjunction with other risk measurements such as standard deviation. Investors who are risk averse should probably stay away from securities with high UI values because, if these securities experience a severe decline, they are unlikely to recover in the near future.

Since the ulcer index measures change from a recent peak, it is more practical to think of it as a short-term risk measure.
http://www.investopedia.com/terms/u/ ulcerindex.asp