Cramer's 'Mad Money' Recap: Play by the Rules

In fact, most big institutional players on Wall Street missed about a 50% gain with the big move Darden had between March 2005 and January 2006 because they were snobs and didn't want to go to Olive Garden or Red Lobster, Cramer said.

When to Believe the Hype

Rule No. 4 : Whenever a stock is being heavily shorted and heavily hyped at the same time, it's time to sell that stock, he said.

"Hype can be many things, but what I'm talking about here are analyst recommendations, celebrity endorsements and much-touted facts in the media that don't actually mean anything for a company's bottom line," Cramer explained.

To find the percentage of shares in a company that are shorted, or bet against, people can go to Yahoo! Finance, Google or TheStreet.com, where Cramer is a shareholder and director, and look up the stock.

Stocks that are heavily shorted and heavily hyped are "dangerous," and people should think of them as "a war with two sides," he said. While on one side there are analysts who love the stock and talk it up, on the other side there are people betting a lot of money that the stock will go down.

"You don't do something as risky as shorting a stock unless you're a well-educated investor who has done his or her homework on the thing," Cramer said.

"So when all the analysts are having their lovefest with the stock, and you have an army of shorts sitting on the sidelines, you should see a red flag."