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Cramer's 'Playing Defense' Rules: Part 3

Friday, 14 Aug 2009 | 8:35 PM ET

Forget about making money. Sometimes holding on to what you have is much more important.

When the Goin' Gets Tough
Once your stocks get a nice upside move, get defensive, with Mad Money host Jim Cramer.

That was the focus for Monday’s show. Cramer offered up 25 rules that will keep you from losing your hard-earned cash when the market’s at its worst.

Remember: Plan for the downside, and let the upside will take care of itself. The best way to do that is by following these important tips.

11. If you’re broker stops talking up a stock that you own, sell it. Especially if it’s no longer doing well. He might be embarrassed to tell you that you own a loser, even more so if he’s the one that recommended it to you.

12. Get defensive after a big run. Cramer uses to indicators to measure a surge in stocks: the S&P Oscillator and the Investors Intelligence Bull-Bear Ratio. You can read more about the S&P Oscillator here. But basically it estimates how oversold or overbought the market is. When there’s too much buying, Cramer takes profits. The Bull-Bear Ratio is released every Wednesday. When more than 50% of investment pros are bullish, Cramer recommends playing defense. Too many bulls spoil the pot, he said.

13. Sell a stock with a dividend yield that’s twice the Treasurys. Any company with a dividend that high is usually on the verge of making a cut. Think of it as a warning signal. The only exceptions here are the tanker stocks and oil and gas master limited partnerships and trusts. They both pay dividends depending on the current rate of business.

14. Don’t buy stock in a company with a rookie CEO. They still have too much to learn. So let them pay their dues before you buy in.

15. You must sell a stock as soon as the catalyst you’re trading on has passed – no matter what. It doesn’t matter whether you made money or lost it. Never turn a trade into an investment. Or worse – a lottery ticket. The old “dollar and a dream” schtick doesn’t work on Wall Street. Know what you’re buying and why you’re buying it. And know when it’s time to move on.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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