ryan. >> the volatility today is the taste of volatility. make sure i'm jim cramer. welcome to my world. >> you need to get in the game. >> firms are going to go out of business, and he's nuts. they're nuts. they know nothing. >> i always like to say there's a bull market somewhere. >> "mad money," you can't afford to miss it. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you a little money. my job isn't just to entertain but to educate and teach you, so call me at 1-800-743-cnbc. there is nothing worse than watching the market roar higher while your portfolio is barely moving. it makes you feel like a dope like the stock market must be a

shell game. really, it just means you may be making a few mistakes. tonight i'm devoting the show to my play book for taking advantage of a short-term ral uhly, not to be confused with a so-called bear market rally which is a bogus term when stocks go up. i'm talking about giving you a game plan for how to deal with short-term run-ups as opposed to long-term runs in your stock. i know what you're thinking. what kind of bozo incompetent doofus needs a guide to make money in a rally? what's next? is cramer going to tell us how to pick your nose? "mad" potty training. who needs help when it's up 200 points in a day or is a love buyfest. do you need my help to deal with huge profits? do we buy into stock sage big e.

smalls theory of mo money, mo problems on this show? absolutely not? i explained it getting back to even. make sure it doesn't happen again. rebuild your wealth on a sound basis. that's about as important as it gets in cramerica. sure, everybody makes money in a big rally and it feels your portfolio is running itself. i'm not talking about how to make money when the market is up big. that's a high quality problem. you always have to work to prepare for the future and not let some great opportunities pass to [ sell, sell, sell ] uh i know, you heard it. dirty word. not for me though. as we can't give in to despair when the market is down big [ screaming ] you don't want to give in to euphoria and [ buy, buy, buy ] when the market is roaring when

it might be the right time to let go of some stocks. you don't have a profit until you sell something. you aren't making money until the register is rung. to buy and hold through the best and worst of times, that's just not true. no matter how many times you have read it. it's not empirical. you need to use strength to lighten up. particularly on stocks that don't pay good dividends or ones where the fundamentals are deteriorating which is why i insist on doing homework, not just forgetting about the portfolios. that's another bogus concept from gray beards, many of whom i like personally off the desk but i know they haven't done the work that, okay, i have. put it this way. nobody wants to miss a rally. if you sold every stock before a huge up day you would feel like a stooge and not even larry,

curly or mo. that's shemp. you would be holding it against yourself for months. you have massive gains but you don't do anything. you just let them ride. gradually your stocks come back down. perhaps back to the price before the rally or lower. how many times has that happened? if you hang on for to too long, let the gains ride until they evaporate you might as well have missed the rally. you made nothing and you have to hold on to a bunch of stocks not deserving of our ownership. making lots of money on a great day, great month or great year is wonderful. it's why many of you are in the game. you can't view a rally or a uh day or a few days where your portfolio went up in value and nothing more. you have to see it as a time to actually take action. even if you don't fancy yourself a trader and this doesn't make you a trader. uh i'm not talking about market time. if you're like that you have to make an exception.

you have to make an exception for the good days and i will tell you why. it doesn't mean i'm turning into a high speed trader. that's just a bogus charge in itself. don't misunderstand me. a big up day is something that should be celebrated. i i am in favor of them. they should be remembered. why? the next time we get hit with a downturn and you want to give up you should remember the good days that will keep you in the game which is the ultimate mantra of cramerica. just as you need to remember the good days you have to remember there will be more sell-offs in the future when the market is roaring. so often i say to sell the rips and buy the dips. don't pass up on the opportunity to lighten up just because you earned stocks in the long run or you heard it is wrong to trade stocks at any time and you're an investor. being an investor doesn't ab solve you of the need to have judgment. in other words, you have to approach every rally with a grain of pessimism about what's coming next. it shouldn't be hard after the european crisis crushed us over

and over again. every time we thought we were out they pulled you back in. you would have weeks with the dow rocketing up off a positive statement from a european official only to be crushed the next day by another official counteracting that. that kind of volatile action is an example why it makes sense to use a rally to take profits. you never know how long the profits will last. there is nothing wrong with feeling good about a rally. as someone with allegedly violent mood swings and a habit of reaching for cheap scotch and the dirty linoleum floor e i recognize the value of being able to celebrate your stocks. euphoria is fine as long as it doesn't lead to complacency, the enemy of every investor on the down side and the upside. on a big up day you can be thrilled. don't forget you have a terrific opportunity to sell a lot of stocks at great prices that perhaps they don't deserve.

that's what short-term rallies are for. we can be swept away by the positive. i know because i have been there myself. not just because of the olympic-related spice girls. when the market is up and everyone is optimistic the last thing people want to do is sell. when everything seems wonderful how could uh you want to sell stock? it's one of many situations where your emotions get in the way of making the right decision. exuberance is enough to forget the most basic maksim in investing. buy low, sell high. it doesn't say buy low and hold. it's sell high. you end up watching stocks go higher without a care in the world but nobody ever made a dime being carefree. the trouble with being complacent is it encourages you to do the opposite of what uh you should be doing. you're sitting there watching the gains roll in and you feel like selling stock would be the most insane thing in the world. what happens if the rally keeps going? doesn't matter. we sell into strength but we never sell all at once.

timing isn't much of an issue. we are not market sellers, technicians. if the rally holds up you can sell more later and higher. the name of the game is preparation. there is no way to prepare for a rally other than by owning stocks. during a rally you can prepare for the bad days and the really bad days that will most likely be coming. the best time to adjust your portfolio is when stocks are ramping higher. you have to i approach a rally with caution, not unbridled enthusiasm. when the dow is up a couple hundred in a day i don't think, wow, this market is great. what a time to buy. no, i calm myself down, bite the heads off the bear toys on the desk i think about what i'm going to need if the market goes south. i also consider what you can do for your portfolio today, the day of the rally, that you couldn't do yesterday. the answer is selling, but not everything. that's nuts in all but the most dire situations.

we believe in buying and selling stocks incrementally. it's something i teach you about in "real money." this is my show. i'm entitled to shameless self-promotion. it's not completely tasteless, is it? you want to sell in bigger increments to get the great prices while they last. i will go through the whole "mad money" playbook and explain what to sell, how to sell and why you're selling it. right now the bottom line is simple. when the stock market has had a big short-term run, don't get carried away by optimism. focus on the long term. ring the register on goods that don't deserve to be owned that got marked up by a market that lifted up everything including stocks that would otherwise not be worth your time or more importantly your money. carl in new jersey. carl. >> caller: boo-yah to you, jim, from the garden state. >> i love the garden state. the garden state mall is terrific, too, for the record. what's up? >> caller: i have a question. how do you differentiate between

a seasonal rally and a long-term bull market? >> all right. a seasonal rally -- my experience has been that the concept of seasonal rallies is outmoded. used to be summer rally, santa claus rally, a rally, rally, rally. if they are based on fundamentals it's real. i try to distinguish between the two every night on "mad money." randy in my not home state of nebraska. randy. >> caller: big boo-yah -- midwest boo-yah to you, jim bo. >> i i love it. what's up? >> caller: two-part question for you. what's the difference between day trading and after hours trading and if a stock makes a big move up in after hours trading is that an indicator to sell? >> day trading is a guy trying to get in and out. it's called being flat at the end of the day meaning you have no positions. trading after hours means you are trading in a thin market or trying to outguess everybody

else. unless you are a quick draw mcgraw hedge fund you should not be in after hours trading or you will get your head cut off. brian in new york. >> caller: hey, brian, university boo-yah to uh you. >> way to go. what's up? >> caller: my question is about buying stocks on a pull back. uh know you like to pull the trigger when it's down 5 to 8% and buy in increments. say uh i bought 50 shares at 19, another 50 at 17.75 a, a hundred at 18. the stockle falls but i can't add more nor do i want to. uh feel i made a mistake in timing in increments. what do you suggest i do? what's the correct percentage or amount of a stock to buy on a pullback and what percentage do you buy in? >> first you did a tight scale. i don't advocate that. you need a wide scale. your first 50 can be at 19. then you have to wait a point. make it so the next buy gives you a better basis. you buy at 18 1/2 and 19, you

wait 19, 18, wait another point. you're buying too tight. you're defeating the purpose of the incremental buy down. are rallies exciting? yes. don't let a rally take you for a fool. your optimism must be tempered with preparation because the next thing that might happen is a big sell-off and you will be left high and dry. "mad money" will be back. >> announcer: don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets. send jim an e-mail to madmoney@cnbc.com or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com. this country was built by working people.

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many don't know what's going wrong. few can easily handle the trauma of big losses. almost everybody wants some expert to help them figure out the next move. i don't blame them. in my 31 years in the business, i can't recall a single time where somebody came up to me and asked, jim, the market is rallying like crazy. who do i do? that's unfortunate. just as you need a playbook to deal with declines, something i have given you on "mad money." getting back to even was filled with that. it's the guide to dealing with troubled markets. you need a rally playbook, a guide to tell you what to do when the market is having a big short-term run. cramer hasn't gone off the deep end but speaking of myself in the third person isn't a sign of sanity. i have been doing out for years. look, i know the wisdom is nobody wants help with a rally. they don't need it. you need to reject the idea that people only need help when the

market is lousy. there are mistakes you can make when the market is going higher. in fact, the rally playbook might be in some ways more important than the sell-off playbook. if only because people think they need one. fewer know what to do and the market is in favor of selling if you want the most money. good thing uh i'm here to share this wisdom. as a well preserved 67-year-old man i i get to call it wisdom as opposed to stuff i have learned. my first rule for handling a rally. always be tough on your portfolio on the big up days. the only time you should be harder on the stocks you own is in the midst of a brutal decline with no end in sight and you need to circle the wagons meaning to dump everything you aren't thrilled to own and use the cash to shore up your position in the stocks where you have the most conviction. how do you get tough on the portfolio? should you beat out up for lunch money? waterboard it. for a second i thought i was on homeland, maybe "24."

how about giving it the silent treatment? i'm not ruling it out. but you have to give every stock the harshest possible, ugliest, meanest evaluation. suspend the benefit of the doubt. assume everything you own is guilty until proven innocent. focus on the worst qualities of your stocks. emphasize the down side. make every company you own prove to you it's worth holding all over again as if you didn't own it. would you buy it if you didn't own it? this is silly or unfair to your stocks. on a good day or good week you are ready to fall in love with your positions because they have made you money, even the bad ones. stocks are merely pieces of paper. you can fall in love with your spouse, your kids, your cat, your dog, your car, house, gun collection, just as long as you don't become enamored with a piece of money you have for making money. but i did trade my cat away.

maybe it was a he. he wouldn't rally. no, he shed all over the place and there was no one to take care of him. he didn't pay a dividend either. in a rally you shouldn't give stocks too much credit for making you money unless they outperform the rest of the market. still hard time. when a stock makes you a lot of money the normal reaction is to like it more. i get it. most of the time you should probably like it less because as stocks go up they become more expensive. during a major rally unless there is serious good news that bolsters the case for your stocks they become pricier and less desirable with the exception of laggards that got left behind. in other words let's walk you through it. in the wake of a big up move you should consider your portfolio less attractive. price matters when a stock price goes up the risk reward is worse. you made money which is what we are after but you can't let that

prejudice you in favor of a particular stock. out's like blackjack. the cards have no memory. the stock may have gone up while the market was roaring today or yesterday. that doesn't have any bearing on where it goes tomorrow. i'm sorry. it doesn't. that's the first reason to get tough on stocks. they just became more expensive and less compelling thanks to the big move. the risk reward deteriorated for most stocks unless there are actual moves. say you bought texas instruments at 25. you thought it could go up nine or down three. the potential upside was three times the potential down side. suppose during the rally texas instruments rocketed up four points and there is no news. nothing. you know, that changes everything. after that run texas instruments could go up five or down seven so you now own a stock where the down side is not so good versus the upside. what if the stock has been a performer? you will want to sell.

i don't like stocks that run like that on nothing. as much as we know and like the company, know it hasn't changed much in value, the stock isn't the same stock up seven points from where it was. out's more expensive. it's not as safe. if there is too much enthusiasm texas instruments can be dangerous. same company but a different stock. the second reason to get tough on stocks during a rally is to figure out which ones to sell and sell hard. i tell you to sell on strength all the time on this show. i recognize this idea is emotionally counterintuitive. can i use that word to apply to feelings? i can. my show. in a rally everyone is buying. you feel great about your stocks and you don't want to sell, but you have to. there is no better time to sell than during a major short-term move higher. by the way, the selling doctrine applies to everything, even mutual funds. if you have gigantic short-term runs it's okay to ring the register even on those. i know this is radical, heresay.

but the facts have borne it out for years of underperformance for almost all stocks except those that pay good dividends. i personally have had to risk the program of investing establishment that refuses to look at the facts. they ignore how horrible the returns have been for stock ifs you do nothing but hold. all the time they don't take short-term action to book profits on portfolios. they act as if they are never wrong. they have acted that way through years of being wrong. i seem to be the only one who calls them out. it's a dangerous thing. you don't like the establishment against you. look, i don't care. i have to do what's right for you. not what's right to try to please them. i'm never going to please them. how do you fight the instincts and get to a place where you can sell in spite of your emotions? simple. you get tough on the portfolio. re-evaluate stocks and demand

more than you normally would especially if they are more expensive than they were the day before. i have a very specific way of grading my stocks since i have used since my hedge fund days. every week on fridays i rank the stocks in my charitable trust. i used to do it in the hedge fund. you can follow along at action owners plus.com. you see my rankings if one to four. ones you would buy at the current price. two in they pull back. threes you would sell at a higher price and fours are stocks you want to sell, period. when it comes to the ranking system which stephanie, research director perfected, a rally simplifies things. prices are up so ones become twos. stocks worth buying on a

pull-back since most things will be too expensive to pull the trigger on. better to keep the powder dry and wait for a sell-off. a lot of stocks go from ones to twos. this is just a preliminary approach to what you should sell in a short-term rally. i will give you more detail later. you will see this methodology. the reason we rank the stocks is to keep our emotions in check. we buy uh low and sell high instead of buying high because it feels good. most people for reasons we don't have time to go into enjoy buying stocks but see selling them as a defeat. it's not defeat when you get top dollar prices during a juicy rally. you have to put yourself first in sell mode and get tough on stocks. bottom line. during a big up day and after, don't be swept away by euphoria. don't listen to the doctrine that it's not worth it to book a profit on merchandise because it isn't the same merchandise up higher than it was before. if the fundamentals aren't changed. if it hasn't improve it might have gotten too expensive as a stock.

give your stocks a hard time. hold them to a higher standard and ring the register on the names you like the least and the ones that are up the most. after the break uh i'll try to make you more money.

tonight we are divingo the "mad money" rally play book teaching you the disciplines to help you take advantage of a big up day. over and over again i have been telling you short-term rallies are on opportunity to [ sell, sell, sell ] not buy. extolling the virtues of something that may sound obvious but can be hard to put into practice because it runs counter to what our emotions say we should do when stocks are going higher. people don't like to hear about selling stocks except when they are panicked and think the world is falling apart. then they want to be given

permission to sell everything even when that's almost always a mistake. generally most want to know about buying, especially what to buy. ultimately you should have a plan for selling every single stock you own. every stock you buy you should have a plan to go. even the best ones. before you purchase them. you have to learn it from the day i got into the hedge fund business. not anymore. simply as a part of being a good investor. stocks of good companies can get expensive as we saw the huge runs up in chipotle, netflix, decker's. how about microsoft? the stocks went too high. selling into a rally isn't solely about turning a profit then and there. we are looking to buy uh low and sell high. so a big up day or two gives you a great chance to lighten up. but the best reason to take profits or cut your losses during ale rally all boils down to what i talked about at the beginning of the show --

preparation. what am i talking about? look. i believe you should be prepared for the bad days down the road. maybe i can be a class half empty guy. except of course when i'm a glass half full guy. mostly because the bad days are just as inevitable as the good ones. if you haven't learned that what's the best time to get ready for inevitable down days? how about during or after a big up day? think about all the times our market has roared off some ethereal talk about potential solution to the woes in europe. boom, we go up only to come back down when a german official puts the kibosh on anything that would help. imagine how much better you would have done if you used the initial rally as a time to do some selling. take something off the table. raise a little cash. in other words a short-term rally is your best opportunity to protect yourself from a potential downside. trust me. you get the most mileage out of preparing for the worst days on the best days. don't get me wrong.

that doesn't mean you should sell everything into strength. i don't want it. that's self-defeating. it doesn't mean you should believe all ral lis are not to be trusted. this is what i counsel you against in "getting back to even ". plenty of rallies take you higher in true jackie wilson style. you can use a big up day to take some profits and get ready for days that won't be as good. there is no cognitive dissonance know many gray beards think telling you to trade into oblivion. we are looking at capital preservation, you need to keep your money secure and capital appreciation. you need to grow your money. these are necessities. use a rally to take profits so when the market comes back down you will have cash on the sidelines to do some buying of stocks that were put on sale. in a way the rally playbook is a prologue to the sell play book.

we use the rally to stock pile what we need if things get bad. one of the things we need is cash fluchltz i i'm not a capitalist. i'm a mo nnarchist. many don't know but if you read action owners plus.com bulletins you do. people tell me they are fully investing meaning every dime is invested. when someone tells me they think it is a good thing. cash, my friends makes everything else possible. back at my hedge fund i would never have less than 5% of my portfolio in cash. i would try to get up to 10% cash after a tumble in the market. cash is flexibility. when the market gives you an opening to start a position in a stock you want or buy more of something you own you need cash in order to do your buying. otherwise you have to sell something you already own on the

fly or use margin meaning to borrow from your broker, something i never recommend because it's too risky. a big rally is a fabulous opportunity to get off market. start investing like a sane person rather than someone with a financial death wish. [ screaming ] >> what's this got to do with responding to a rally? we would all like to be heavily invested with a little cash before the rally but calling it in advance is difficult. raising cash which you must do if you are fully investing and the rest of you should want to do is right after the rally. your portfolio's cash position is like your car's gas tank. if you don't have at least 5% cash you're running on empty. you better fill her up next chance you get. whatever you sell to raise cash you will get a better deal after the rally. listen, i'm not saying rallies are a great time to go into all cash. as a matter of fact that's the kind of trading back and forth

mentality i hate. i believe it is essential to raise some cash during or after a rally because of the inevitable. i don't care how much you like your stock. not selling something to raise cash when the money makes it easy for you is reckless. for action owners plus.com, my charitable trust, i used to play for a charity. i have taken my cash position up to almost 20% at times when i sensed not fear but too much euphoria i put the swing cash into the market on the way down in stocks i like better than what uh i would have hung onto. the quality of the companies you own isn't part of the equation. uh it's the price of the stocks of the quality companies. some have gotten overextended in every rally. so trim them and buy them back lower later with the cash you have raised from the selling. that's the point. next time things go sour you will have cash you got during the rally. you can take advantage of the

weakness and do buying of the great companies with inflated stocks that are no longer inflated. this isn't about a great deal. it's about protecting yourself. here's the bottom line. next time we get a big up day or two, i'm begging you. you some of the strength to raise some cash. without cash your portfolio has zero flexibility and the best time to raise cash is when the market is on an upswing. michelle in california. >> caller: hey, jim. my question is as a young investor is it better to focus on long-term or short-term buys. >> young investor has an opportunity someone like me will not get again. that is they have their whole lives ahead, paycheck after paycheck. my paychecks will stop. closer than someone young. you can make mistakes because you can earn the money back. later on people can't make mistakes. you want to take a long-term view but you want risky stocks. if they don't work out you can make it back with your paycheck.

carol in california, please. >> caller: hi, jim. this is carol. boo-yah from northern california. >> boo-yah back. >> caller: i have a question. i want to thank you so much for all your help with small scale investors. >> thank you. >> caller: along those lines, why is it that when a stock becomes very pricy they don't consider speed of light spliting it so ordinary investors can risk buying shares? >> it's funny. i did a whole series of articles. i did a piece on this where i blogged saying, you know, i wish they would split the stock because it's intimidating people. they won't because they feel like i do that it's cosmetic. right now retail needs to fete back in the game. when the market is heading higher and higher, use some of the strength to raise cash. hey, listen. cash is king, after all. stay with cramer.

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there are two types of

stocks i recommend selling into a big rally, but the two categories are complex requiring years if not decades of trading on wall street to comprehend. but you guys are a smart audience and i'm taking a stab at it. in a short term rally you want to sell good stocks that had great runs and bad stocks that belong to a curious or honestly embarrassing club i will tell you about in a moment. people want to throw rotten food ott me or burn me in effigy when i take a stock i recommended and change my mind telling you it should be sold. uh change my mind because my thesis turned out to be wrong and the stock turned out to be so bad it deserved to be thrown into the sell block. that's rule number 10. don't dig in your heels when you're wrong. that's as important as it gets. there are many times when i tell you to sell a stock i liked even

though i was right about it. simple. there is a real reason. that's because out's time to ring the register. this is something my critics loathe. they believe a company is either a buy or a sell at any price. if you vacillate you must be full of it or a flip-flopper or a scheister. the truth is price matters. most stocks are buys at some prices and sells at other prices. a lot of stocks you bought lower need to be sold. you don't have to sell every share. in fact, i prohibit that kind of thing which is another nuance ignored by people who want my head cut off considering price when i tell you to ring the register. [ ka-ching ] when you catch a nice rally you should sell some of the best stocks. showers, not all of it. i mostly want to trim back positions in my big winners, especially momentum stocks that have been on a roll and have

gotten too overheated. the high growth, high price to earns multiple means they can come crashing down. think chipotle. painful. it lost a hundred points in a day after a disappointing quarter in the summer of 2012. selling into a rally might sound like lunacy but it makes sense. by virtue of the performance these stocks will take over a larger chunk of your portfolio. use apple. when you bought it it was 10% of your portfolio. then it doubled. you need to stay diversified so trim them as great as they might be just to keep them from dwarfing your other positions. short-term rallies give you a chance to unload risky names at terrible prices. even if the stock still has an amazing story, nobody lost money taking a profit. again, you don't have to sell everything. keep shares on the table. ring the register on some so

you're playing with the house's money. those are the good stocks you should sell into strength. of course you should get rid of anything you plan to sell before the rally. you can dump those losers because you will probably get better prices. then there is the losers' club. big short-term rallies are a great way to test what you own. if you have a stock that went down on no news that stock could be a loser, a dud. if you can't get lift on a huge up day maybe out's not going anywhere at all. it makes sense to look over names that didn't participate in a big marketwide rally in order to spot losers before they do damage to your portfolio. it happened to me time and again. not all laggers are losers but failures in a rally can be a clue that something is wrong with your stock. it might not be the company's fault. usually it's a macro problem meaning it has to do with big

picture economics. when the economy heats up the defensive stocks sit out the big rallies in cyclical names meaning stocks of companies that do better and improve the economy. we don't care about blame. we care about winning. stocks that can't hunt, stocks that cannot win in a major rally are stocks you need to think twice about owning. here's the bottom line. after a major short-term rally you want to do some trimming of the big winners. pare back on momentum names. and sell the losers that got left behind. stick with cramer. [ male announcer ] drive a car filled with as much advanced technology as the world around it. with the available lexus enform app suite, you can use opentable to make restaurant reservations. during the golden opportunity sales event,

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you're watching the "mad money" rally playbook where i'm teaching you how to take advantage of a market up big over a short period of time. say you're just tuning in. i'm deeply wounded by the cold

shoulder you're giving me. i shouldn't share with you what happened earlier. i know you did it to hurt my feelings and it worked. okay. i hope you're happy, tv personalities have feelings too. let me get back to business. most of the rally playbook is about what you can do to benefit from higher stock prices, how to use a rally to set up the rough patches the market runs into sooner or later and what stocks you should sell to do it. the last part of the rally playbook is different. it's not about what to do during or right after a rally which we have covered. i want to talk about what a major move higher teaches you about your portfolio. this is serious portfolio management i'm about to give you. i'm not worried about anyone under performing the averages on a big up day. that's something you can easily study and fix by getting more exposure to the sectors that were up the most. no. what should get you concerned is watching your stocks dramatically outperform the averages during a marketwide

rally. you heard me right. making too much money can be a problem. i discussed this all the time with the research director of my charitable trust. all the time. out's a red flag when you are making big money versus the market consistently. when your gains -- they are trying to warn you. the warning is simple. when you leave averages in the dust on a day when they are all roaring you're taking on way too much risk, at least for me. i know i don't strike you as a conservative investor. that would be wrong. the fact that i do this show every day though it doubles my odds of a serious heart attack doesn't help my case. taking on unnecessary risk in your portfolio makes no sense. watching your stocks move in a rally is a great way to tell if you have the unnecessary risk. the rally comes. you make more than the average. the question is why. maybe you were using margin. borrowing from your broker because the rates are low to get extra leverage. that will help you crush the

averages in a rally but it's going to crush you entirely in the sell-off. what else could cause you to outperform the benchmarks? maybe you're not divert identified. that's a way to make too much mone a short term frame. say it's 50% oil. i would call you an idiot. you will be a big winner for a day or two. the outsized earnings are screaming at you to sell some and call me for am i divert identified. if you are keeping your stock eggs in one sector basket you can get wiped out in a heart beat. just ask the investors who loaded up on only tech before the dot bomb collapse. i listened to them brag to me endlessly. they were making too much money. if they paid attention they may have been able to avoid the damage from hideous tech losses by adjusting holdings.

it would have saved them. coming out of the great recession stocks with international exposure outperformed domestic peers. remember b.r.i.k.? if you were too. bottom line. the best time to figure out if you are making too much money which means you are doing something dangerous is during a rally. use it as a diagnosticing test to see if the portfolio has too little diversification and too much risk or if it is okay. we'll be right back.

you may not think you need help when the whole market seems to be levitating, but you do. when stocks go up, especially up big, people get emotional and that makes us bad investors. that's what the "mad money" rally playbook is about. helping you combat emotions so you can make rational decisions. when you catch a big up day that's a selling opportunity. use it to unload your best

performers and laggers and stocks you wanted to get rid of so you can raise cash for a rainy day that will certainly come. that's the important thing to keep in mind after a major move higher. that brings me to my final rally rule. if raising cash is essential then spending it is prohibited. after a big one-day move i know you will be tempted to buy stocks the next day. i always was when i was a hedge fund manager. big up days make us bullish. when your last experience was having all your stocks produce huge gains of course you will feel like buying. it's another case where your feelings lead you astray. do not buy stocks after the market spiked. don't chase. take advantage of rallies. when you buy the day after they have gotten gigantic mark-ups you are letting the rally take advantage of you. i know you're doing it. i read out on twitter all day after every big up day. that's when people get most juiced. they are most excited. that's when they want to open their wallets to chase stocks.

don't do it. i will respond that way on twitter if you do. you know i can be feisty in retweets. sounds like common sense. something any bozo could figure out. i don't want to waste your time. of course it's silly after a rally or a huge run. you know it right up until the moment you get swept away by euphoria. that's why you need a playbook done in the cool of day. you need rules to prevent yourself from making mistakes you will later regret. if you want to buy a stock and the market had a run, tell yourself you missed it. try that. say, you missed it. take a pass. at least keep your bat on your shoulder and wait for a better purchase at a cheaper price. out's the smartest thing you can do. it may save you pain. i always tell you to buy into weakness, sell into strength. that means you have to sell your winners at the moment they are at their hottest. you probably shouldn't buy

anything when the market feels like out's on fire. your new stock picks will alas be consumed by the aftermath of the fire and you won't have much to show for all that hard earned money up in smoke. stay with cramer.

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