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 Cramerica to provide the ultimate insider's perspective on how the market works 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.
These are the same methods that have served him well for his four decades of investing and allowed him to generate a 24 percent annual return at his hedge fund.
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.
One thing to keep in mind is that the market is not that hard to play, as long as it is understood that there is often more continuity than change. That means once you buy a stock, things will pretty much keep going the way they were until there is a major shift. Then you must change your approach and be prepared with a Plan B.
One trick to the trade that Cramer likes is to wait for a pullback to occur before pulling the trigger to buy a stock. He always tries to buy on weakness and sell into strength. He recommends waiting until a high-quality stock is down at least 5 percent, as that will give you a solid entry point.
"You only buy stocks that have pulled back from the new-high list if you are confident they will make a comeback for substantive reasons not having to do with the market," the "Mad Money" host said.
Read More Cramer's secret to picking stocks
So now that you know the basics of how Cramer picks a stock, what if you really, really, really want to buy a stock that is hitting a new high?
Cramer has one exception to his rule, which is that if you see insiders buying a stock when it is already up a lot that is a green light.
"It's a rare thing to see happen, but in my experience it is rarer still that this method of picking stocks doesn't work out," he added.
When insiders are getting in on a stock, it is a great sign that they have confidence that the stock is about to take off, or that it will be long lasting.
Keep in mind that most insider trading in small quantities is meaningless. Sometimes an insider will start buying stock because they want to give the impression of confidence. That is why when there is a colossal amount of buying, then Cramer wants you to take another look at the stock.
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.
There is also one other scenario that indicates the stock is a raging buy. That is when Cramer sees that a stock has heavy short- selling, meaning investors have borrowed shares that they don't own, sold them and are waiting for the stock to go lower before buying them back. Short sellers are looking to collect the difference between the high price where they sold them, and the low price where they bought back the shares.
"You can think of shorting as like regular investing, only in reverse. We try to buy low and sell high. Shorts just turn that around, selling high and then later buying low," Cramer added.
Why is short-selling important?
Short-selling is an indication to Cramer that the investor who sold short really believes the stock is headed lower. After all, the potential downside is infinite with short-selling so they are taking a lot of risk on themselves.
In Cramer's opinion, knowing proper strategy for trading will make you a better investor. That is why it is so important to know how to trade around a core position.
So, what does it mean to trade around a core position? Cramer outlined the steps below.
First, pick a stock that you both like and believe will go higher in the long term. Think of a company with solid fundamentals that can stay strong when the market becomes volatile and will go higher with a little patience.
Cramer recommended establishing a position in the stock through buying in increments. Buying it all at once is just plain arrogant, in his opinion.
For instance, if you want to own 100 shares of your favorite stock over time, then Cramer wants you to buy the stock in increments of 25. Buy it four times over a span of weeks or months until you reach 100 shares.
If you wanted to start trading on your core position, then every time the stock jumps 5 percent, you should sell 25 shares. Keep shaving a little off the top to bring in some profits. This is called scaling out of a stock, though Cramer always likes to keep the last 25 shares if he loves the stock.
Then you wait until something happens to the stock that knocks it down to the same price when you bought it initially, as long as the news isn't specific to the stock. Then when the stock comes down, you start to buy it in increments again.
This might appear to be small potatoes, but over time the profits add up. Up 5 percent and sell 25 shares, then buy it from where you started; the cash in your pocket will start to accumulate.
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.
A trick that Cramer uses is that once a hot stock has at least six analysts covering it, then the love may die down for the stock. That's because it is about to be too big and too well known, and the stock cools off when everyone who was interested in buying it has already done so.
"This formula has worked for me as long as I can remember. As far as I can tell, it works because the number of analysts on a stock is a good gauge of how much awareness and interest there is in a name."
Read More Cramer: When to sell a hot stock