Editor's note: The following is a recap of RealMoney Radio that contains rebroadcasts of two segments.In Friday's special
When a mailer asked what the most satisfying part of market is, he said the market is not a game of culture or helping people, but of making money. "It's not satisfying when you lose a lot, and it is when you make a lot," he said. "It's a bad day when you lose money and a good day when you make some."
The CommandmentsIn that vein, Cramer laid out his "Ten Commandments of Trading."
Cramer's 10 Commandments of Trading1. Never turn a trade into an investment. Have a clearly defined reason for buying a stock, and declare upfront whether the position is a trade or an investment. Consider writing down exactly why you are buying the stock and when the catalyst is going to occur. Once the catalyst has occurred or fails to occur, you must sell the stock no matter what. 2. Your first loss is your best loss. Most trades need to work immediately in order for them to be right. If the trade goes against you, sell the stock quickly and move on to avoid bigger losses. Don't fight it. 3. It's OK to take a loss when you already have one. Don't pretend you aren't losing money simply because you haven't sold a losing trade. "A loss is a loss whether it's realized or unrealized," said Cramer.
No one can come back from a chronic loss position, he said. That's why it's important to cut your losses sooner rather than later. 4. Never turn a trading gain into an investment loss. When you buy a stock for a trade, you should not expect to make as much money as you would on an investment. A trade that becomes an investment is akin to an "overstaying of your welcome," said Cramer. You will almost certainly give back the profit. 5. Tips are for waiters. The only reason someone gives you a tip is so he can get out, said Cramer. The person wants to get the stock moving, so he can get out at a higher price. The person is using you by giving you the tip. If that's not the case, then the person might have insider information, which is illegal to trade on. 6. You don't have a profit until you sell. We've all been brainwashed not to sell, said Cramer, but "it's the only way to be sure that you get rich." Paper gains are not the same as booked gains because gains don't necessarily stay gains. Also, don't be reluctant to sell because you want to avoid paying taxes. 7. Control losses; winners take care of themselves.
"Loss control is the paramount concern for those in the market," said Cramer, because "it only takes a couple of losers to wreck a portfolio. One bad apple can truly destroy the whole barrel." Stocks often telegraph declines, he said, so use those signals to take the losses before they get hideous. Don't buy into the notion you can't sell until a losing stock comes back, promising not to make the mistake again. These traits wreck long-term performance, said Cramer. "It's how losers think." 8. Don't fear missing anything. Discipline is the most important rule in winning investing and winning trading. "That often means admitting that you missed the golden opportunity," he said. Don't try to participate in the rally after the rally is over. How can you tell? That heart-stuck-in-the-throat feeling usually correlates with the top, said Cramer -- not the bottom. The best time to buy is when it feels most awful. 9. Don't trade headlines. Quickly written news stories based on company press releases are almost always wrong in their quick takeaways. It's very tough, for example, to quickly distill a complicated earnings story into a headline. Words such as "better than expected" should raise a red flag. Wait to read the whole story, listen to the conference call and listen for the company's guidance before acting. Don't make snap judgments. "If it's a really great opportunity, you won't miss a thing by taking time to inform yourself," said Cramer. 10. Don't trade flow. If you buy a stock based on observing multiple trades to the upside, you're trading flow. That means "you have no idea why people are buying," said Cramer, and "you are trading on ignorance. Ignorant traders never win, ever," he said. You will lose far more than you will make because many investments people make are ill-considered. Thus, attempting to trade off of them is nonsensical. What's more, how will you know when to sell?