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Cramer's 'Mad Money' Recap: Methods to My Madness

Homegamers can still find opportunities where the short-sellers have overreached, especially in stocks that pay a solid dividend. This often helps to deter short sellers which must pay the dividend on the shares they've borrowed, concluded Cramer.

How to Trade

Cramer's next tip for investors: Learn how to trade. He said learning how to trade stocks on a shorter-term basis will make homegamers better investors overall, as it will teach them many valuable lessons, especially in markets with large, volatile swings in every direction.

Cramer said his normal investment strategy would dictate that if an investor wants to purchase 300 shares of a company, buy them in increments of 100 shares at a time over a period of weeks or months using broad-based selloffs as cues for the purchases.

However, a trading strategy is a little different, said Cramer. Trading around a core position dictates that if an investor owns 300 shares, he or she sells 50 of them anytime the stock moves higher by 3%. Then as shares retreat by 3%, an investor can buy them back on the cheap.

Cramer said that trading in smaller increments may not seem like much, but over time the profits can add up quickly. In today's markets, where stocks can soar one day and be thrown out with the bath water the next, it likely won't take long before homegamers begin to see their trading strategies pay off.

When to Sell

Cramer's last trick for investors involved the critical question of when to sell a hot stock. He said there's certainly a lot of money to be made by owning a hot momentum stock, but investors have to know when it's time to leave the table or risk losing it all.

Such was the case with high-fliers including Chipotle Mexican Grill (CMG) and Intuitive Surgical (ISRG), two long-time Cramer faves that fell from grace in spectacular fashion.

So how can investors tell when a momentum stock has peaked? Cramer said one thing they can look for is the analyst coverage. For smaller, more speculative stocks, Cramer said the rule of thumb is that when a stock has a half dozen or so analysts covering it, the stock will begin to peter out because it's become too well-known.

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