i'm jim cramer, and 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 like to say there's always a bull market somewhere -- "mad money," you can't afford to miss it. hey, i'm cramer. welcome to "mad money." welcome to cramerica. a lot of people want to make friends. i'm trying to make you money. i need to educate you and teach you. so call 1-800-743-cnbc.

there's nothing worse than watching the averages roar higher. while your portfolio sits there barely moving. it makes you feel like a complete dope. like the stock market must be a total shell game, but really it just means you might be making a few basic mistakes. that's why tonight i'm devoting the whole darn show to my playbook for taking advantage of a short term -- short term rally. not to be confused with the so-called bear market rally which is what people throw around when the stocks go up when the intelligent is a thinks they should be going down. i'm giving you a game plan for how to deal with short term run ups in terms of long term runs. what kind of bozo, incompetent dufus needs a guide to make a money in a rally? is cramer going to draw us a picture on how to pick your nose? who needs help when it's up during a multiday run-up?

like a love buy fest? do you need my help to help you deal with the stocks and do we buy into more money, problem on the show. absolutely not. but i'll explain it get back to those of you have had their portfolios trashed making sure that doesn't happen again. rebuilding your wealth on a sound basis. sure, everybody makes money in a big rally. you can feel like your portfolio is running itself, but i'm not here tonight to talk about how to make the most possible money when the market is up big. honestly i can care less. the most important lesson for dealing with a major short term move higher is that you always have to work to prepare yourself for the future. and not let some great opportunity pass to sell sell sell. i know, you heard it.

dirty word, not from me though. that's right. just as we can't give in to despair when the market is down big, you similarly don't want to give into euphoria and buy buy buy when the market is roaring. when it might be the right time to let go of some stock. you don't actually have a profit remember until you do something something. you weren't making money until the register is rung. the idea that you buy and hold through the best of times, by the way that hasn't been borne out. it's not true. no matter how many times you've read it or been indoctrinated by it. you need to need strength to lighten up. especially those that are deteriorating. which is why insist on people doing the homework. that's propounded by doctrinaire gray beards many of whom i like personally frankly off the desk. but i know they simply haven't

done the work that, okay, i have. let me put it this way. nobody wants to miss a rally. you sold every stock you own right before you jumped, you'd feel like an idiot, a loser, a stooge. not even larry, moe, let's face it, that's shemply. let's look at it another way. you're in stocks for the rally and you have massive gains but you don't do anything. you just let them ride. and then gradually, your stocks come back down. perhaps back to the price before the rally or maybe even lower. how many times has that happened in the last decade? if you hang on for too long, if you let your gains ride until they evaporate, you might as well have missed the rally entirely. you have made nothing and you have to hold on to a whole bunch of stocks, not deserving of your ownership. making lots of money on great day or a great month or a great year is wonderful. it's why many of you are in this game.

but you can't view a rally as just a 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. this doesn't make you a trader. believe me. 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, i'm going to tell you why. it does not mean i'm turning into a high speed trader any sort -- that is just a bogus charge in itself. don't misunderstand me. a big up day is something that should be celebrated. i'm in favor of them. and they should be remembered. why? because the next time we get hit with a nasty down turn, you should remember the good days, it will keep you in the game. which is the ultimate mantra of cramerica. just as you need to remember the good days during a sell-off, you have to remember there's more sell-offs in the future when the market is roaring. that's why so often i say sell the rips but buy the dips. don't pass up an opportunity to lighten up just because you earn stocks for the long run or because you have heard it's wrong to trade stocks for any

time and that you're an any investor. it does not absolve you of the need to have a judgment. in other words, you have to approach every rally with a grain of pessimism about what's going to come next. that shouldn't be hard after the european crisis seemed to crush us over and over again, 2010, 2011, every time we thought they were out they'd pull you back in. the dow would rocket up 200 points only to get crushed for hundreds of points by some other official counteracting that person saying something negative. that kind of volatile action is a classic example of why you use a major rally to take the profits because you don't know how long the profits will last. there's nothing wrong with feeling good about a rally. with someone with violent mood strings and heading straight for the dirty linoleum floor we get a bad tape, euphoria is fine. and complacency is the enemy oh

every investor. 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 get swept away by the positivity. i know because i have been there myself. not just because of the olympic related spice girls flick. when the market is up and everybody is optimistic the last thing most people want to do is sell. once you believe in the market again, when everything seems wonderful how could you want to sell stocks? your emotions are going to get in the why of making the right decision. the exuberance is enough to forget the basic maxim of all. buy low, sell high. notice it doesn't say buy low, hold. it's buy low, sell high. so you end up sitting back and watching your storks go higher without a care in the world. you know what, nobody made a dime being care free. the trouble with being

complacent during a rally is it encourages you do the exact opposite of what you should be doing. i know the feeling. you're sitting there and watching the gains roll in and selling stock would be the most insane thing, because what happens if the rally keeps going? doesn't matter. we never sell all at once. that way timing isn't much of an issue. remember, we're not market timers or sellers or technicians. take some off. if the rally hold up, hey, you can sell more later and higher. the name of the game people is preparation. there's no way to prepare for a rally other than by owning stocks, but during a rally you can prepare yourself for the bad days and the really bad days that are coming. the best time to adjust your portfolio so that you're ready for the next sell-off is when stocks are ramping and going higher. and that's why you have to approach a rally with caution, not with unbridled enthusiasm. when the dow is up a couple hundred burkes in a day i don't think, wow, this market is great. what a time to buy. no, after i calm myself down, maybe bite the heads off the little bear toys that i keep on the desk, i think -- i think

about what's going to -- what i'm going to need if the market goes south. and i also consider what you can do for your portfolio today. the day of the rally that you couldn't do yesterday. the answer to both questions involves selling. i don't mean sell anything. that would be nuts in all but the most dire situations. we believe in buying stocks and selling stocks incrementally. that's what i taught about in my first book. hey this is my show, so i'm entitled to a little shameless self-promotion. during a rally you want to sell in bigger increments to get the great prices while they rest. the rest of the show aim going through the "mad money" playbook that i invented and i'm going to explain what to sell and how to sell it. don't get carried away by the optimism. instead, focus on the long term. think of the goods that don't it was to be owned to got marked up and lifted up everything. including stocks. that would otherwise not be worth your time or more

importantly your money. karl in new jersey, karl? >> caller: boo-yah to you from the garden state. >> i love the garden state. the mall is a terrific place too. what's up? >> caller: i have a question. how do you differentiate between a seasonable rally and a bull market? >> seasonal rally it's outmoded. it used to be a summer rally and a santa claus rally. there was a rally between rosh hashanah and yom kippur. we get the short squeezes and i try to distinguish between the two every night. randy in my home state of nebraska. randy? >> caller: big boo-yah, big midwest boo-yah to you. >> what's up? >> caller: two-part question for you. what is difference between day trading and after hours trading and if a stock makes a big move upward move in after hours

trading, is that an indicator to sell. >> day trading is the guy trying to get in or out? it's the inflatic at the end of the day. trading after hours means you're trading the information very thin market typically on trying to be able to outguess everybody else. i think unless you're a quick drummer of hedge fund, you should never be in after hours trading because you'll get your head cut off. brian in new york? >> caller: hey, boo-yah to you. >> way to go, boo-yah. what's up? >> caller: my question is about buying stocks on a pull back. i know you like to pull the trigger and buy in increments. let's say i bought 50 shares of x, y, z. a 19, a hundred at 18.50 and the stock continues to fall but my position is filled. i can't add more nor do i want to. i feel i made a mistake in timing my purchases in increments. here's the three-part question. what do you suggest i do, what's the correct percentage or the amount of stock to buy in the

pullback and what percentage do you buy -- >> first, you did a tight scale. i don't advocate tight scales. you need what's known as a wide scale. your first 50 can be at 19. then you have to wait a point. you have to make it so the next buy gives you a better basis. you buy at 18.50 and 19, get an incremental basis. wait until you get the basis, and wait another point. you're buying too tight. you're defeating the purpose of the incremental buy down. your optimism must be tempered with optimism because the next big thing is a sell-off and you eel be left high and dry. "mad money" will be right back. don't miss a second of "mad money." follow @jimcramer on twitter. have a question, tweet him #matt -- mad tweets. or give us a call at 1-800-743-cnbc. miss something? head to madmoney@cnbc.com.

people always want help when the market sells off. they want me to tell them what to do to validate their fear, stocks get hammered, investors freak out. they panic. or at the very least they seem to want to panic. they want to be this guy. many don't know what's going wrong. few can easily handle the trauma of big losses. and almost everybody wants some expert to help them figure out the next move. i don't blame them. but you know in all my 31 years in the business, i can't recall a single time where somebody came up to me and asked, jim, the market's rallying like crazy. what the heck do i do? that is unfortunate. because just as you need a playbook to deal with the climbs, i have given you a bunch of my books, getting back to -- the ultimate guide to coping with trouble in the volatile markets you need a rally playbook. you need a guide that tells you what to do whip the market is having a big short term run.

if cramer hasn't finally gone over the deep end -- speaking of myself in the third person is a definite sign of insanity. i have been doing that for years. look, i know the received wisdom is nobody wants help with a rally. they don't need it. but you need to reject the idea that people only need help when the market is lousy. there's all kinds of mistake you can make when the rally is going higher. if only because few people think they need one, if you know what to do and then the market is in the favor of selling, good thing i'm here. to share this accumulated wisdom. well, as a well preserved 67-year-old man, i get to call it wisdom instead of stuff i learned. here's my first rule. my first rule for handling a rally, always be really tough on your portfolio on the big up days. the only time you should be harder on the stocks you own is when we're in the midst of a brutal decline with no end in sight. then you need to circle the wagons. meaning dump everything you aren't thrilled to own, use that

cash to shore up your positions in the stocks where you have the most conviction. how exactly do you get tough on the portfolio? should you beat it up for lunch money. water board it. no, no. how about giving it the silent treatment. i'm not ruling the options out. but what i mean by getting tough you have to give every one of your stocks the harshest possible, ugliest, meanest evaluation. suspend the benefit of the doubt. assume everything you open is guilty until proven innocent. focus on the worst qualities of your stocks. emphasize the down side. make each and every company you own prove to you that 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 strikes you as silly or even unfair to your stocks let me explain. on a good day or a good week

you're ready to fall in love with your positions. although remember, we never count that because stocks are pieces of paper. you can fall in love with your spouse, your kids, your cat or dog. love your car, your house. your gun collection. just as long as you don't become enamored with a silly piece of paper that you bought for the sole purpose of making money. i did trade my cattish kibble, i traded her away, or maybe he, because 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. you shouldn't give your stocks too much credit for making you money unless they dramatically outperform the rest of the market. even then, still, hard time. when the stock makes you a lot of money the normal reaction is for you to like it even more. i get that. most of the time you like it less for the simple reason that as stocks go up they become more expensive. during a major marketwide rally unless there's serious good news that bolsters the case for some of the stocks they become pricier and therefore, less desirable. with the exception of laggards that got left behind by the rally.

in other words, let's take -- let's walk you through this. in the wake of a big up move your entire portfolio you should consider it to be less attractive. like i explained in getting back to even, the price matters. the risk becomes worse. you made money which is what we're after, but you can't let that prejudice you in favor of any particular stock. it's like blackjack. the cards have no memory. your stock may have gone up while the market was roaring today or yesterday. but that doesn't have any bearing on where it goes tomorrow. sorry. it just doesn't. that's the first reason to get tough on you stocks. they just became more expensive and therefore less compelling investments thanks to the big move. and it's deteriorated in meaningful way, let me explain. let's say you bought texas instruments at 25. your potential upside was three times the side of the potential downside. suppose that during the rally, it goes up four points and

there's no news. not one of the mid quarter updates, nothing. well, you know what that changes everything. after that run, texas instruments could go up five or down seven. which means you own a stock where the downside, well, you know, it's not so good versus the upside. so what if the stock has been a performer? that's awful risk reward. you'll want to sell. i don't like stocks that have run like that an nothing. as much as we may know or like the company, the stock is simply not the same stock up seven points from where it was. it's more expensive. it's not as safe. and if there's too much of enthusiasm at once, texas instruments can be down right dangerous. same company but a very different stock. the second reason to get tough

on your stocks during a rally is so you can figure out which ones to sell and sell hard. i'd tell you to sell on the strength all the time on the show, but i recognize this idea is totally emotionally counterintuitive. can i use that to apply to feelings? yes, i can. it's my show. you feel great about the stock, even euphoric, you don't want to sell because you have to because there's no better time to sell than during a major short term move higher. oh by the way, the selling doctrine applies to everything. even mutual funds. that's right. if you have a gigantic short term runs, then it's okay to run them even on some of those. i know it's radical and heresy, but the facts have borne it out for years. years of underperformance for almost all stocks except those that pay good dividends. so we have had to rethink some time on the concepts. i personally have had to risk the program of an investing establishment that simply refuses to look at the facts or ever believes in selling. they just ignore how horrible the returns have been for stocks if you do nothing but hold them and all the time they don't take some short term action to book profits on their portfolios. they act as if they are never wrong. but they have acted that way through years of actually being wrong. i seem to be the only one who ever calls them out on this. it's dangerous thing to do. you don't like the establishment to be against you. look, i don't care.

and that's -- i have to do what's right for you. and not what's right to try to please them. i'm never going to please them. so how do you fight your instincts? how do you get to the place where you can sell in spite of your emotions? simple. like i said before, you get tough on your portfolio. reevaluate your stocks and demand more from them especially since they're more expensive than the day before. i personally have a very specific way of grading my stocks that i have used since my hedge fund days. every week on fridays i rank the stocks right now in my charitable trust. you see my rankings from one to four. i put them out. ones are stocks that you would buy at the current price. twos are stocks you'd buy if the price pulls back. three are stocks you'd sell at a higher price and fours are stocks you want to sell period. when it comes to the ranking, a rally has a way of simplifying things.

prices are up. so the old ones stocks worth buying at the current price becomes twos. stocks worth buying on a pull back since most are expensive to pull the trigger on, keep your powder dry and wait for a sell-off down the road before you do buying. a lot of stocks go from ones to twos. threes, stocks you want to sell become fours. stocks you're going to sell right now because you've got the strength you're looking for. now, this is just a preliminary approach to what you should sell and i'm going to give your detail later in the show. you'll see this methodology play out every single hour. the reason we rank our stocks like is to keep our emotions in check so we buy low and sell high. instead of buying high, just because it feels good. most people for reasons we don't have time to go into really enjoy buying stocks but see selling them as a defeat. it's not a defeat when you're getting top dollar prices during a juicy rally. but first you have to put yourself in sell mode. you have to start by getting tough on your stocks. here's the bottom line. during a big up day and after, don't get swept away by the euphoria.

don't listen to the doctrine that it's not worth it to book a profit on some merchandise because it isn't the same merchandise up higher than it was before. if the fundamentals aren't changed, if it hasn't improved, then it might have gotten too expensive as a stock. so give your stocks a hard time. hold them to a higher standard and ring the door and register the names you like the least and the ones that are up the most. after the break i'll try to make your money. let's go to kentucky. >> hillbilly boo-yah! >> a hillbilly boo-yah? holy cow. >> hey, now, forget about it, boo-yah. >> boston. >> michigan. >> california. >> georgia. >> alaska. >> honolulu. >> boo-yahs come from all across america. let cramer help you channel yours. "mad money" with jim cramer, weeknights on cnbc.

tonight we're diving into the "mad money" rally playbook. teaching you the disciplines that will let you take maximum advantage of a big up day. over and over again i have been telling you that short term rallies are an opportunity to

sell sell. not buy. extolling the virtues of something that's obvious but hard to put into practice. because it runs counter to what our emotions say to do. people don't like to hear about selling stocks. except when they're panicked. and the entire 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. but 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 of them. before you even purchase them. that's -- i learned that from the day i get into the hedge fund business. i retired from it. simply as a part of being a good investor. because stocks of good companies can get very expensive. as we saw the huge runs up in chipotles and deckers, and how about intel, sysco, microsoft in others.

the stocks went too high. let me make this clear. selling into a rally is not about turning in a profit then and there. obviously we're looking to buy low, sell high. a big up day or two gives you a great chance to lighten up. but the best reason to take some profits or cut your losses during a rally, all boys down to what i talked about at the beginning of this show. preparation. what am i talking about? look, i believe you should be prepared for the bad days down the road. maybe because -- maybe i can be a glass half empty guy of guy. except of course when i'm being a glass half full guy. mostly because the bad days are inevitable as the good ones. what's the best time to get ready for the inevitable down days? how about during or right after a big up day. think about all the times our market has roared off something, you know, just some talk about a potential solution to the woes in europe, we go roaring up. imagine how much better you would have done if you used that initial rally as a time to do some selling. take something off the table.

raise a little cash. in other words, the short term rally is your best opportunity to protect yourself from potential down side. trust me. you get the most mileage out of preparing for the worst days on the best days and don't get me wrong. it doesn't mean you should sell everything into a kind of strength. i don't want that. that could be self-defeating. it doesn't mean you should believe all rallies are ephemeral. plenty of rallies have plenty of staying power and can take you higher and higher in true jackie wilson latin casino style. you can use some profits and get ready for the days in future that won't be as good. there's no cognitive dissonance here even so many of the gray beards think he's telling you to trade into oblivion.

not true. we are trying to balance the concepts of capital preservation and you need to keep your money secure with capital appreciation. you need to grow your money. both of these are pure necessities. not mutually exclusive. use a rally to take profits sewn what the market comes back down you'll have that cash on the sidelines to be ready to do some buy buy buy. buying stocks that have been put on sale. it's more of a prologue to the sell-off playbook. we use the rally to stockpile everything we need in case things get bad. one of the things that we need is cash. yeah, i'm not a capitalist at heart. i'm a monarchists as long as cash gets to be king. plain old king is the most important part of your portfolio. most of the home gamers don't know this. if you read boltons, believe me you do. i hear from people all the time who tell me they're fully invested. every dime of the market has been earmarked for investing in stocks.

whenever somebody tells me this, they think it's a good thing. cash my friends is what makes everything else possible. back in my old hedge fund i never would have less than 5% of my portfolio in cash. i would try to get up to 10% cash after the markets take a tumble. 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 already own you need to have cash on the side lines. otherwise, you have to sell something you already own on the fly or use margin. meaning borrow from your broker. something i never recommend doing because it's too risky. speaking of margin, a big rally is a fabulous opportunity, the best, to get off margin. start investing like a sane person. rather than someone with a financial death wish. >> no! >> so what's this got to do with responding to a rally? well, we all would like to be heavily invested with a little cash for the rally. trying to call in advance is often too difficult. but the best time to raise cash and the rest of you should want to do it is right after the rally.

think of it like this. your portfolio's cash position is like your car's gas tank. if you don't have 5% cash you're running on empty. you better fill her up the next chance you get. whatever you sell to raise cash, you'll get a much better deal after the rally. but listen, i'm not just saying that rallies are a great time to go into all cash. that is not what i'm saying. as a matter of fact, that's that kind of trading back and forth mentality i hate. i'm saying i believe it's essential to raise some cash during our after a rally because of the inevitable. i don't care how much you like your stocks, not selling something to raise cash when the market is making it easy for you is down right reckless. my travel trust which i do as a bulletin to you, all-stock fund i used to play for charity i have taken my cash position up to almost 20% at times when i sense not fear, but too much euphoria. i put that swing cash back into the market and the stocks are like a lot more than the ones i would have hung on the. even so, the quality of the companies you about own isn't

part of the equation i'm talking about right now. it's the price of the stocks of the quality companies and some have gotten overextended in every rally. so trim them and you can buy them back lower. later with the cash you have raised from the selling, that's the entire point. the next time things go sour you'll be able to take advantage of the weakness to do buying of those great companies that had an inflated stock that are no longer inflated. this is about protection. protecting yourself. here's the bottom line. the next time we get a big up day or two, please, i'm begging you, use some of the strength to raise some cash. you might not know it, but without cash your portfolio has zero flexibility. the best time to raise cash is when the market is on an up swing. michelle in california. >> caller: the young investor, is it better to focus on long term or short term buys? >> the young investor has an

unbelievable opportunity that someone like me will not get again and this is they have their whole lives ahead of them. make paycheck after paycheck. my paychecks will stop one day and you can make mistakes because you can earn the money back. later on, people can't make mistakes. take a long term view and you want to put risk in. you want some risky stocks if you're younger, because if they don't work out, you can make it up with your paycheck. carol in california. >> caller: hi, jim, boo-yah from northern california. >> boo-yah right back. >> caller: i have a question. i want to thank you so much for all your help with small scale investor. >> thank you. >> caller: but along those lines, why is it that when stocks becomes very pricey they don't consider splitting it so that ordinary investors can risk buying shares? >> it's funny, i re -- recently i did a whole series of articles, i did a piece on this,

and realmoney.com, saying i wish the guys would split the stocks because it's intimidating people but they won't, because it's just cosmetic. right now, retail needs to get back into the game. when the market is heading higher and higher, i beg you use some of the strength to raise some 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

incredibly arcane and complex. requiring years if not decades of training on wall street and in academia to fully comprehend. you know what, though, you're a smart audience. i'm taking a stab at it anyway. in a short term rally sell good stocks that have had great runs or bad stocks you want to sell on the strength already or belong to a curious and embarrassing club that i will tell you about in a moment. okay. people always seem to want to throw rotten fruit at me or burn me at least in effigy when i take a stock i have recommended on the show and i change my mind. telling you i think it should be sold. i tend to change my mind because my thesis turned out to be wrong and the stock turned out to be so bad that it deserved on the thrown in the cell block. by the way, don't dig in your heels when you're wrong. and this rule is about as important as it gets. but there are many other times when i tell you to sell a stock i was like, even though i was right about it. simple. there's a real reason. it is time to ring the register. this is something my critics

absolutely loathe, because they believe that a company is either a buy or a sell at any price. and if you vacillate, well, you must be full of it or a flip-flopper or a shyster. i always thought that was an anti semitic term. most stocks are buys at some prices, sells at other places. when we get a rally, a lot of stocks need to be sold. you don't have to tell every single share. in fact, i prohibit that kind of thing. which is another nuance that is ignored by the people who want my head cut off considering price when i tell you to ring the hedge register. when you catch a rally, shares, not all of it. i would want to trim back my positions and in the big winner, especially any momentum stocks that have been on a roll lately and have gotten too overheated. the high growth, high price multiple names that can come crushing down abruptly if you don't take profits. i want you to think like

chipotle. painful because it lost 100 points after it reported a disappointing quarter in the summer of 2012. selling your winners into the rally may sound like pure lunacy, but it makes sense. by virtue of the performance, they're taking over a larger and larger chunk of your portfolio. let's use apple as an example. it was 10% of your portfolio and then it down doubled. since you need to stay diversified you need to trim the monster winners as great as they might be, just to keep them from dwarfing your other positions. short term rallies give you a great chance to unload them at the great prices. even if the stock tells a great story, nobody lost money taking a profit. again, remember, you don't have to sell everything. you can keep some shares on the table. but please ring the register on some of them. so that you're playing with the house's money. >> house of pleasure. >> those are the good stocks you

should sell on the strength. what's worth selling that's not good? of course you should get rid of anything you plan on selling before the rally. and you can dump those losers in larger increments because you'll probably be getter better prices. then there's the loser's club. big short term rallies are a great way of testing what you own. if you have a stock that went down during the rally on no news, that's -- look, that stock could be a loser, could be a dud. if it can't get any lift on i a huge update maybe it won't go anywhere at all. it makes sense to look over names that didn't participate in the big market wide rally in order to spot potential losers. i know this seems anecdotal but it's happened to me time and again.

failure to perform in a rally can be a clue that something is wrong with your stock. it might not be the company's fault. in fact, there's a macro problem, meaning it has to do with big picture economic factors. when the economy is heating up, the defense of consumer staple stocks usually it is out the big rallies in more cyclical names. those who do better in an improving economy. we don't care about blame. we care about winning. and stocks that can't hunt, stocks that cannot win even in a major rally, those are stocks that 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 those big winners. pare back your momentum names and last but not least, please sell the losers that got left behind. stick with cramer.

you're watching the "mad money" rally playbook where i'm teaching you the best advantages to take advantage of a market that's up big over a short period of time. let's just say you're tuning in and i'm wounded by the cold shoulder you have shown me. i know you did it as an attempt to hurt my feelings. it worked. i hope you're happy. tv personalities we have feelings too. but let me go back to business. most of my rally playbook has

been about what you can do to benefit from higher stock prices. how you can use the rally to set up for the inevitable rough patches that the market runs into sooner or later by raising cash and which stocks you should sell in order to do it. the last part of the rally is important. it's not about what you do before or after a rally which we covered. but instead what it can teach you about the portfolio. this is serious portfolio management i'm about to give you. i'm not worried about someone underperforming the averages on a big up day. you can easily study it and fix, by getting more exposure to the sectors that were up the most. no, what should really get you concerned is watching your stocks dramatically outperform the averages during a market wide rally. yeah, you heard me right. making too much money can be a problem. i discussed this all the time with stephanie link, research director with travel trust. it's a red flag when you're making big money versus the

market consistently. the gains -- they're trying to warn you. the warning is simple. when you leave if averages on a day when they're all roaring, it means you're taking on way too much risk. at least for me. i know i don't strike you as the most conservative investor around here. that would be wrong. but the fact i do this show every day even though it probably doubles my odds of like, you know, a serious heart attack or something, it doesn't help my case. but taking on unnecessary risk in your portfolio, that makes no sense. watching your stocks move in a rally is a great way to tell if you have that unnecessary relation risk. the rally comes, you make much more than the average and the question is why. maybe you were using margin. borrowing money from the broker because the rates are so low, get the extra bit of leverage. that will help you crush the averages in a rally. but it will crush you entirely in the sell-off. what else can cause you to outperform the benchmarks in the rally? well, it could be because you're not diversified. that's way to make too much money if a short term frame. let's say that it's 50% oil. i'll call you an idiot, but i'm a diplomat.

not only that, but the outside profits are screaming at you to sell your darn oil positions and call me up to play -- diversify. not the market patting your back for a job well done. if you're not diversified, if you're keeping your stock eggs in one basket you can be wiped out in the heart beat. ask all those who loaded up on tech and got blown out with massive losses. those people were beating the stuffings out of the benchmark. i used to listen them brag to me endlessly, in '98, '99. they were making too much money. they might have avoided the damage from hideous tech losses. lightning up on the biggest winners. i mean, it would have saved them. they had been blown out of the building. more recently coming out of the great recession, stocks with lots of international exposure tended to outperform the heck out of the investment and what was doing better, remember brick? if you got too international, it would come back to bite you. pretty much anything with big euro business, trashed. bottom line, the best time to figure out if you're making too much money, which means you're doing something dangerous is during a rally. use it as a diagnostic test to

see if your portfolio has too little diversification and too much risk or if it's a-okay. "mad money" is back after the break. [singing] hoveround takes me where i wanna go... where will it send me... one call to hoveround and you'll be singing too! pick up the phone and call hoveround, the premier power chair. hoveround makes it easier than any other power chair. hoveround is more maneuverable to get you

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you may not think you need help when the whole market seems

to be levitating but you do. when stocks go up, especially when they're up big, people get emotional and emotions make us bad investors that's what the "mad money" playbook is all about, helping you combat your intuitive emotional reactions so you can make sound, rational decisions. it's a selling not a buying opportunity. you want to use it to unload some of your best performers along your laggards and the stocks you wanted to get rid of anyway. so you can raise cash for a rainy day that will come. that's the most important thing to remember after a major move higher. which brings me to the final rally rule. if raising cash is essential, then spending it is absolutely prohibited. after big one-day move, i know you're going to be tempted to buy some stocks the next day. i know. i always was when i was a hedge fund manager. they make us bullish. when your last experience in the market was having all of your stocks produce huge gains of course you'll feel like buying that's another case where your feelings are leading you astray. do not buy stocks after the market has spiked. don't chase.

i want you to take advantage of rallies but when you buy the day after they had gigantic markups, you're letting the market take advantage of you. i know you're doing this because i read it on twitter @jimcramer. after big days that's when people want to start chasing stock, don't do it. i will respond to you that way on twitter when you do. you know i can be feisty in the retweets. this sounds like common sense that like bozo or crusty could figure out, but i don't waste your time on the show. of course's silly to buy the day after a rally or after a stock has a huge run. you know it right up until the moment when you get swept away by the euphoria. that's why you need a playbook. done in the cool day. you need rules to prevent yourself from getting swept up in the battle. so please if you want to buy a stock and the market has had a remarkable run do me a favor here, tell yourself you just missed it. try it.

say you missed it, take a pass. wait for a better pitch and a cheaper price. it's the smartest thing you can go. it may save you a lot. maybe an intraday sell-off. you have to sell your winners at the moment when they're at their hottest, you probably shouldn't buy anything when the market feels like it's on fire. your new stock picks will alas will consumed of the aftermath of the fire and you won't have much to show for all this hard won money up in smoke. stay with cramer. i like to say there's always