Mad Money

At all-time high, does Cramer sell—or buy more?

Cramer: Stay current in the market
Cramer: Stay current in the market

(Click for video linked to a searchable transcript of this Mad Money segment)

If there's anything stock investors love to talk about it's a stock at an all-time high. Quite simply, when a stock makes an all-time high, investors who currently hold the stock have gains.

But when a stock trades up to those lofty levels, what should you make of the price action? Is it bullish or a sign of a top?

Although it's never a mistake to ring the register, one of Cramer's strategies for profiting from the stock market involves watching the new high list and then buying strategically. "Stocks on that illustrious list, the highest of the high, obviously have something going for them," he explained.

The "Mad Money" host went on to say that's especially true when stocks make new all-time highs in a market that's otherwise challenged. "Only the very best of the best can hit new highs when the market is falling apart," he said.

Therefore Cramer thinks when stocks make new all-time highs, they are essentially sending a message to investors. "They're either saying they're part of a genuine bull market, or that the company itself has some serious momentum."

And either way, that stock is a stock that Cramer wants to own.

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However, that's not to say Cramer dives in, head first. "That would be the ultimate in foolishness," he said.

Instead, Cramer watches the price action very carefully. Only if the stock makes a new high, then pulls back, then make another new all time high, then pulls back will he even consider a position.

If the price action is anything different from what's described above, then you risk chasing, something Cramer never advocates.

However, if the pattern of making a new all-time high, then pulling back, then making another new all-time high, then pulling back presents itself, Cramer says the momentum is bullish, and, in that case he advocates making a move.

But not at the all-time high.

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"When I'm ready to establish a position, I wait for a pullback to come that's at least 5 percent down," Cramer said.

And once he's established a position, Cramer does his homework furiously. "You have to do all the homework, you must have conviction that gains will continue," Cramer said.

That is, he identifies the reasons for the up trend and he also identifies a level at which he'll take profits.

This is a strategy that Cramer has employed time and again, and he believes it's a simple and valuable way in which regular investors can beat pros.

"Some of my best picks have come out of this process," Cramer revealed. "I believe that some of yours can too."

Call Cramer: 1-800-743-CNBC

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