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Cramer’s trick for trading tech

(The video above was first made available on December 26, 2013. Click for searchable transcript of this Mad Money segment)

If you're looking to put money in technology stocks, Jim Cramer thinks there's something you should know.

Many individual investors approach this sector in a way that's unlikely to generate profits.

That is, they treat tech stocks the same way they treat food and beverage stocks or pharma or even the tobacco companies.

"A tech stock like Skyworks Solutions is not the same as a staple like Pepsico. NVIDIA is not Hershey. SanDisk is not General Mills. ARM Holdings is not Altria, and Micron is not McDonald's," Cramer said. "The first half of these pairs, the tech names like Skyworks and Micron, are trading vehicles that can fly and crash. The second half, the Pepsicos and the Altrias, are staples that plod along slowly but surely," he said.

Therefore, strategies that make all the sense in the world for staples often make no sense at all for tech stocks. In fact, they may be downright dangerous.

"In tech you have to think more like a trader. Cramer said. That is, you have to revisit your thesis often. "And you have to be willing to change your mind. Most important, you have to be ready to sell," Cramer said.

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In tech, sentiment can change on a dime. Especially if a breakthrough in technology or a partnership deal has potential to change the landscape quickly and dramatically.

Therefore, "You must constantly scour the media, the company's earnings reports and Street research," Cramer said. And you must know why you own the stock in the first place.

If the thesis becomes less compelling, ring the register. That's the case even if you don't have profits, he said.

When pros sense the story has changed, they will sell first and ask questions later. "Therefore, shooting star tech stocks can get hammered."

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If you hold tech stocks you may even have to break one of Cramer's tenets of investing; you may have to sell into panic.

"In this sector sometimes you have to lighten up, rather than wait for a bounce. Otherwise you risk ending up like the victims of the dot-com bomb, the people who refused to sell when the story fell apart and got wiped out. I don't want that to happen to you. In this sector sometimes it's enough to make it out alive," Cramer said.

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