UlcerIndex Divergence Indicator Generation III is modern indicator with complex mathematic algorithm (BJF Trading Group innovation). You will see divergenses on the chart and indicator. Arrows painted above/below the open bar and not in the past. You can see when actually you can trade. It is never to late! Signals based on closed bars so the arrows above/below open bar never disappear.
UlcerIndex Divergence Indicator
MT4 Indicator Ulcer Index Divergence indicates fractal divergence by Ulcer Index indicator.When divergence appears between Ulcer Index and the price, it indicates a high probability that the current trend will finish soon. A signal to buy is when a new Low-fractal is formed below the previous one and a corresponding Ulcer Index value is higher than the previous one. A signal to sell is when a new Up-fractal is formed above the previous one and a corresponding Ulcer Index value is lower than the previous value. The indicator Ulcer Index has a lot of customizable settings.
Ulcer Index Explanation
The Ulcer Index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, 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. 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
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.
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.