Next week starts quietly, but Jim Cramer is gearing up for another busy week of earnings.
"We are still not done with earnings. Things will remain busy and confusing with wild trading in stocks simply because there aren't enough hours in the day to do the homework. Stay sidelined if you can," the "Mad Money" host said.
Cramer recommended doing the homework by reading conference call transcripts too, not headlines. When the headline doesn't match the conference call — that could be a great opportunity.
The most important data of the week will be the Labor Department's non-farm payroll report. Cramer isn't looking for fireworks, as it was clear from the Federal Reserve this week that the Fed seems to be on hold. If the report is very strong, he anticipates rate hike chatter will begin again and send down high-yielding names in the packaged goods group like Procter & Gamble, Clorox and Kellogg.
"We are now in political season, which means a bad number will cause more protectionist talk from the Republican nominee, Donald Trump, and given that we are in the full bore part of the campaign, we want to be careful, very careful," Cramer said.
Likewise, a weak jobs number could mean Trump turns his eye to trade policies, and this could mean stocks of international industrial companies could be under fire, he said.
Cramer is passionate about educating investors on the ultimate insider's perspective for the market 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," he said.
This is why he decided to share the methods that have served him well in his four decades of investing — and to successfully run a hedge fund.
So what does he 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.
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.
Another thing to watch for in a stock that has a lot of short-sellers is that if there are a lot of them, and all of a sudden good news comes out, the stock could surge. That is because the short-sellers then panic and scramble to cover their short positions — a move called a short squeeze.
Even better, when there is a heavy short-position on a stock, sometimes the people who run the company will start to buy shares for themselves. It is the equivalent of management drawing a line in the sand and saying "our stock goes this low, and no lower."
"This is an explosive combination, and one that often leads to a short squeeze that sends the stock much higher," Cramer said. (Tweet This)
One strategy that Cramer uses is to trade around a core position.
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.
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.
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. (Tweet This)
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," Cramer said.