Cramer's 'Mad Money Recap': Tricks for Buying and Selling

"If a lot of people are shorting a stock and management is buying it, usually -- do your homework -- you're going to want to side with management, and then you can ride a short squeeze higher and higher."

The fourth method to his madness, Cramer said, is trading around a core position. Going through the process step by step, he said the first thing people need to do is find a stock. "Find a stock that you believe will be going higher over the long term," Cramer said.

"What you're really looking for here is a great company that could get tossed around by market volatility but will go higher if you're patient."

If people were just investing, then they'd set up a position in the stock, buying in increments, he said. But if they wanted to trade, say, a 300-share core position of a $100-a-share stock, then every time the stock jumped three points, or 3%, they would sell 50 shares, Cramer said.

"You shave a little off to bring in some profits," he said.

Then people would wait for something to happen, as long as it doesn't hurt the basic fundamental outlook of the company they own, to knock the stock down a peg or two. "As the stock comes down, you buy it back in increments," Cramer said. "Since we started with 300 shares, let's keep using increments of 50 to buy it back."

Although all the trimming and adding of stock might not seem like much, "over time your profits add up," he said.

One important rule to remember when trading around a core position, Cramer said, is that when using the above-mentioned example, he would not own more than 300 shares or fewer than 100.

"The basic idea is to avoid putting yourself in a position where you have too much on the table in case the stock gets swatted down, or too little on the table to take advantage of any upside that comes your way," he said.

Cramer's final investing trick he wants to impart is the importance of realizing that "sooner or later, all hot stocks implode."

By "hot" stocks, Cramer means "small" stocks, or stocks with a low market-cap and very little research coverage, that have been going up for a long time.

"Small, hot" stocks are definitely worth owning, but people must know when to sell them, Cramer said. That moment usually comes when there are too many analysts jumping on the bandwagon.

Cramer would use four analysts as a good rule of thumb to let people know when to get out.

"Hot stocks get tapped out when there's nobody left to be attracted to them -- when all the people who are going to buy have already bought," Cramer said. A great example of this in recent years is Hansen Natural (HANS Quote), "which was the hottest stock in 2004, the hottest stock in 2005, and the hottest stock for the first half of 2006."

The stock, he said, peaked in July of 2006, partly because the company did a five-for-one split, which encouraged people who'd been in Hansen for a long time to take something off the table.

Another reason Cramer believed it would peak is because Hansen had just picked up its fourth analyst on May 10, 2006, when Goldman Sachs started covering the stock.

Want more Cramer? Check out Jim's rules and commandments for investing by clicking here.