Cramer's 'Mad Money' Recap: Rally Rules

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Editor's note: This recap was last published on July 7, 2010

NEW YORK (TheStreet) -- "Knowing how to approach a rally the right way can definitely make you a better investor," Jim Cramer told the viewers of his "Mad Money" TV show Wednesday as he opened up his playbook to help home gamers score big during short-term rallies.

Cramer said that everyone makes money in a big rally, but it's the smaller rallies that can separate good investors from great ones. He said that nobody wants to miss a rally, but that's what typically happens when individual investors get caught off guard.

Investors have to approach every rally with a grain of pessimism about what's coming next, said Cramer, but it's wrong to approach rallies with too much pessimism. "There's nothing wrong with feeling good about a rally."

What really hurts individual investors is complacency, Cramer told viewers, whether it's the euphoria that a rally can last forever, or the pessimism that things are bad, and will stay bad, forever. He said that it may be hard to be counter-intuitive, but he always advises selling into strength and buying into weakness.

"The name of the game is preparation," said Cramer. Prepare yourself for a rally by owning stocks, and prepare for the bad days by lightening your positions. "Don't get carried away," Cramer concluded, "keep your head on straight and focus on the long term."