He has also found that charts are especially helpful in determining the best entry and exit points on a stock.
"As long as sellers overwhelm buyers with their dumping, no base can form. A climax is a sign that those potential sellers who had been holding on for some time are finally giving up en masse," Cramer said.
Additionally when a chartist sees that the volume has grown or expanded but the stock doesn't go down, that means the stock has finally found its floor and is now safe to buy. That is when the number of buyers is finally equal to the sellers in their power to determine the direction of a stock.
Chartists also look at the advance of a stock, which happens when the stock takes out its resistance overhead. Technicians don't just look at the closing price and a graph against the previous day, because it won't actually paint a clear picture of the trajectory.
Instead, technicians use what is known as a moving average to better represent a stock's movement. They figure out the moving average by taking the closing price of a stock over a period of time, add them up, and then divide by the number of days in that measured period.
Investors can determine if a stock is overbought or oversold by charting the ratio of higher closes, also known as the relative strength index, or RSI. This is a momentum oscillator that measures the direction that a stock is going, and the velocity of the move.
Cramer also matches the RSI of an individual stock to something else, maybe the relative strength of its sector or a larger index, and then measure the price action historically. He looks for anomalies where strength stands out, because that is a sign that there is a pending move or a change in momentum.
The inverse can also be true; a stock can also fall so fast that investors should expect it to snap back because it is technically oversold. These patterns are reliable indicators that a change in direction is about to occur, and are terrific action points.
So, for investors that are debating whether to buy a stock, have done all the research and find that the stock is overbought, Cramer said to wait for the inevitable pullback that almost always happens.