Jim Cramer has seen what happens behind the scenes of the stock market, and warned of one huge mistake often made by investors in a sell-off.

"The pundits and commentators say it's too hard, that ordinary people can't invest for themselves and shouldn't even bother trying, but I know from experience … that you can do it as long as you're willing to put in the time and effort," the "Mad Money" host said.

One of the worst myths out there, he said, is that the market is always rational and makes sense. This is not true.

On any given day, the market can be totally wacky for reasons that do not make sense. Sometimes stocks go up when they should have gone down, and sometimes entire sectors move for ridiculous reasons.

"Never assume that just because something happened it has to make sense because the market is always supposed to make sense. That's nonsense," Cramer added.

It is important to be able to look at some of the crazy moves and understand that the stock moves are just nuts. Once investors start cooking up connections that don't exist, they really get in trouble, Cramer warned. Investors can pretty much make themselves believe anything.

The key is to understand the catalysts that make stocks move.

Sometimes, a stock move can have nothing to do with the underlying prospects of the company. When that happens, Cramer recommended taking advantage of that irrationality, not to buy into it by chasing stocks or panicking out of them.

"Remember, nobody ever made a dime panicking," Cramer said. (Tweet This)

For instance, sometimes the market sees a huge pullback and stocks fall even though it has nothing to do with those companies' fundamentals. Struggling hedge funds will start selling to raise money to pay back unhappy clients who are demanding money.

Sometimes there is a red-hot deal, like a Facebook or Alibaba, which is so massive that the mutual funds have to sell stocks in order to raise cash to get in on the deal. It's crazy, but mutual funds don't keep cash on hand to make these kinds of investments. That means they don't have enough cash to participate in these big deals unless they sell stocks they own.

Regular investors will see the selling and start to panic, dumping stocks in turn. Ultimately, this will trigger a sell-off, and the media will try to cook up reasons all over the place to explain why otherwise stable stocks went down.

It can happen to commodities, too. Cramer saw it first hand when oil ran up to $147 a barrel in 2008, even as demand for petroleum was stable to weaker, which should have caused oil to go lower. Only after that insane rally did he find out that oil skyrocketed because a couple of hedge funds had bet against oil, and had to buy in their shorts at insanely high prices. Sure enough, after that huge run, oil fell straight back down to $33 a barrel as hedge funds sold it off to raise cash.

"The worst mistake, the most common mistake you can make these days, is to say that because a particular stock or commodity trades at a given level, it therefore deserves to trade there. Often, that is just fiction now," Cramer said.

So, when everything in the market or in a particular sector goes down, instead of assuming that the issue pertains to the fundamentals of the underlying company, Cramer suggested to ask yourself if it could have been caused by an out of control hedge fund or Wall Street money management. Then realize that the market's irrationality can be your opportunity to profit.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine

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