Jim Cramer does not get up out of bed at 4 a.m. every day just so that he can dish out the hottest stock picks to the "Mad Money" audience. He does it because he is passionate about educating investors on the ultimate insider's perspective for the market and how to make money.
"What I'd really like to do is empower you, and that starts with me teaching you all the many tricks I use to pick out great stocks and trade them like a pro," Cramer said.
So what does the "Mad Money" host look for when picking a stock?
One of the easiest ways for Cramer to identify the stocks that should be on his radar is to look at the new-high list. These are stocks that hit a new high in trading for the day, especially on days when the market is in bad shape. If it is hitting a new high on a down day, then obviously it has something good going for it.
When Cramer sees a stock on the new-high list, it is either because it is part of a bull market, it announced fantastic earnings, or there is tremendous sales momentum within the sector.
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"What I am teaching you are really what I call tells—they are signals that a stock might be worth owning—that it is worth your time and effort to go through the often boring process of reading through the conference call transcripts and quarterly process," the "Mad Money" host said.
First, Cramer uses the new-high list to determine what should be on his radar. Another signal that he looks for is to buy stocks that have had a big run, along with substantial insider buying. Insider buying indicates that the people running the company believe the stock is headed higher. If they believe, you should believe, too.
However, Cramer warned that these signals alone are not a good reason to buy a stock. At the end of the day, there is no avoiding doing the homework on a company.
That means checking the fundamentals and making sure the company has a story that you can get behind.
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"I want to talk about selling, which, along with when you buy, may be the most important and undervalued tool in your home arsenal," said the "Mad Money" host.
So how do you know when to sell a hot stock?
Just like when you attend a party, you have to know when it is the right time to leave. When dealing with stocks, there is a lot of money to be made by owning a hot stock with a lot of momentum. The trick to making the most money is to know when it's time to get out.
When Cramer refers to a hot stock, he means hot speculative stocks. Those are stocks of companies that have a low market capitalization and have very little research coverage from major Wall Street research houses. Sometimes, these stocks can catch fire and stay hot for years.
"The key to figuring out when interest has peaked and it is time to sell is by watching the analyst coverage," Cramer added. (Tweet This)