>> intrexanon. xon goes buyer. >> i'm melissa lee. thank you for watching. don't go "mad money" with jim cramer starts right now. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you some money. my job is not just to entertain but to educate and teach you. so call me at 1-800-743-cnbc or le course tweet me @ jim cramer. tonight i'm letting you in on something big, the meth oltd of my madness.

i know this is the most bizarre thing on not just business tv but television in general. think about it. a one-man show about business? but i also know that you won't find investing advice this good anywhere else. you know that too or else you wouldn't be watching, unless you're one of those people tunes in to see if tonight 'the nights that i actually do go off the rails, by after multiple years of airing, is always a possibility on any given night. sorry, guys. there's a tape delay, but keep wishing. bound to happen one day although i do my best so it doesn't. this show is all about the method or methods to my madness. how do i pick stocks? what gets on the show? you always ask me that. why do you tell you that some stocks are worth buying now or on the dip instead of just like, hey, tomorrow. that's the question everybody would like to know. tonight i'm going to give you pieces of the answer. let's get rolling. one of the easiest way i identify potential cramer names for "mad money," the stocks that could but won't necessarily always end up on the show is by watching my favorite list from

when i was frankly a little boy in fifth grade. i used to look at the new high list. i thought it was like the guys who were hitting better than 0.300 in baseball. stocks in that list the highest of the high obviously have something going for them and that's especially true when the market's in bad shape. so what's it tell you when a stock hits the new high? either that it's part of a genuine bull market or the company itself has some serious earnings or sales momentum, or maybe its sector does, which is so oven responsible for a stock's increase. no matter how they get there, many stocks on the new high list often keep going higher because it's really a list of a students that are worth investing in. the a students tend to repeat themselves in the process every quarter just like the really smart kids in school. in a great bull market from the bottom in 2009 and any market by the way that doubles from the bottom has to be considered a great bull market. even as i know so many resist such labels, we saw this new

high list phenomenon over and over again. the same stock would hit new high after new high after new high and following them was a great way to make money, even as the bears claimed endlessly that the bull market was false and couldn't be trusted. listening to the bears caused you to miss out on one of the greatest rallies in history. obviously it's more the exception than the rule over time in all the years i've followed the market but generally speaking things have worked -- have continued to work because these stocks typically represent companies that are best of breed. always remember that phrase because it's integral to "mad money." i am not saying that just so you can chase stocks that are hitting new highs because they'll keep going higher. that would be the ultimate foolishness, true bozo the clown behavior. i'm saying if you want to identify stockers that will be winner in the future, unless there's been a big sea change caused by a shift dramatically higher in interest rates, looking at the bigger winners of the present is a pretty good place to try to figure out the future. let this list do it for you.

it's already been scrutinized and scrubbed. that's the thing about the market. it's not always that hard to play once you understand there's often more continuity than change. things pretty much keep going the way they're going until something major shifts, and then you do have to alter course. those course changes can be pretty radical, though, and that's why you always have to be re-evaluating your ideas and should never dig in your heels when the facts change. something we emphasize over and over here, and it also infuses my columns in real money and all my books i've written save my autobiography, confessions of a street addict, which is more of a score settling tome, settling scores with myself, of course. hey, it isn't called "mad money" for nothing. but you know what? when you're looking for stocks to invest in, when you're hunting for the bull market like i always do here, looking at the new high list is a terrific place to begin. i don't just pluck names off.

that's a littazy and responsibl. i'm a lot of things, but lazy and responsible, anyone that sees my insane tweets at 5:04 knows, yes, that is me tweeting. some people say, hey, is that someone else tweeting for you? who else would get up that early? you can't do that. i mean and then of course the obligatory, do you ever sleep? well, no. i mean at least not for any long stretch. i play the same standards, though, of rig or that i used at my old hedge fund. so i rarely recommend buying stocks that trade off the high -- what i do like to do, though, when i'm hunting for stocks and what you need to do is wait for the fabled pullback from the new high list because that is the best place to put money. the pullback and there i'm thinking about something that could be 2 or 3, preferably 5%, that gives you a good lower price entry on something that's on that list. remember, i am not telling you to chase momentum. you should always be conscious of price, and therefore try to buy on weakness just like you

want to sell into strength. most people can't pull the trigger when the stock's going down. i'm telling you if it's on the new high list and comes down, that would be your man. i'm throwing these caveats in because i don't want you to look at the new high list as your shopping list. it's a jumping off point. albeit a very important one for those tries to get starts. poring over the new high list is a fabulous way to identify potential stocks to buy. you only buy stocks that have pulled back from the new high list if you're confident they'll make a come back for substantive reasons having nothing to do with the market. you have to do all the same homework you ordinarily do before buying a stock. it's not a -- you don't get a pass there. you absolutely must have conviction even if it's a cynical conviction that the stock is going higher, and i do that for a lot of the ipos. i'm really saying cynically, i know the buyers go crazy about it. me, i accept they're just pieces of paper meaning, you know, the big boys can't resist growth stocks, right? and they will always come to the support on down days. the biggest caveat of all when you're shopping for stocks that have pulled back from new highs,

make sure they haven't pulled back for a good reason, that the selloff is extraneous to the business. don't go buying a home builder that's down if interest rates flew up because they could at least initially get hurt with the quarter. don't buy a big independent oil stock when oil goes down for three straight days because that probably doesn't belong on the new high list anymore. you're looking for a stock thats that bristol-myers like strength because almost nothing has to do with bristol-myers. be certain you're dealing with a momentarily damaged stock and not a troubled company that is going down and down. how do you tell the difference? if the fundamentals haven't changed, the stock probably hasn't fallen from grace. it's pulled back for largely mechanical reasons, profit taking or some panic in the market. now more than ever -- causing huge selloffs that make no sense in everything or doubling and tripping related etfs that are more powerful than the stocks themes, you see pull back from highs for nothing that happened to do at the company. nothing to do with the company

or the strength of the underlying businesses. those are the buys. but if the fundamental picture changes, if whatever made the stock attractive as it climbed its way up the list, than the stock is no longer a candidate. the story has to be intact. while it isn't a hard and fast rule, i tend to like stocks that have pulled back just enough but not too much. i have to tell you 8% is the historical optimal level of a pull back that i've made a lot of money in. less than that, you're going to be early for some of them. more than that, and maybe something is indeed wrong with the stock. you just don't know, 3, 5, 8, those are all important levels. that 8% level, man, i've made a killing when i buy them down 8%. bottom line, that's the first method of kracramer's madness. some of my best picks have come out of this process. it's my getting to workshoping list, hopefully some of yours can too. why don't we start with arzella.

in ohio. >> caller: hi, jim. and booyah to you. >> booyah right back. >> caller: i'm trying to get a better insight on mutual funds, and i'd like to know are they a good way to diversify? >> well, you know what, i got to tell you, arzella, here's the problem. a lot of people have 401 ks where you have to have mutual funds and you can't pick individual stocks, and for that they are. what i like to do is have 20% international, 50% growth, the rest will be kind of a balance situation, maybe a fund that has some bonds. you have to depend on your outlook and your age. but, yes, mutual funds are fine. try to look at some of the performance records in morning star. that's what i use. stuart in florida, stuart. >> caller: jim, what's the best time to use stop orders after you purchase a position? >> no, we're not going to do that because you see if we're going to trade actively, we're going to have to pay attention to it. and if we're not going to trade, we're going to invest. we don't need stop orders because the market could be down 10% in a flash day.

you'll have sold the stock and then it bounces right back. you'll say what the heck happened. we don't play it that way. we invest on "mad money." we're not traders. we invest. all right. there's a method to this madness and tonight i'm revealing it all. the first method, look for stocks that have pulled back from new highs, especially because of a broader market selloff having nothing to do with the individual stock that you want to pull the trigger on. stay with cramer. >> 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 car is traveling over 200 miles per hour. to win, every millisecond matters. both on the track and thousands of miles away. with the help of at&t, red bull racing can share critical information about every inch of the car from virtually anywhere. brakes are getting warm. confirmed, daniel you need to cool your brakes. understood, brake bias back 2 clicks.

giving them the agility to have speed & precision. because no one knows & like at&t. will your business be ready when growth presents itself? american express open cards can help you take on a new job, or fill a big order or expand your office and take on whatever comes next. find out how american express cards and services can help prepare you for growth at open.com.

welcome back to tonight's methods to madness special where i'm revealing some of my best tricks for buying and selling stocks, truly timeless investing wisdom for the ages, i hope. next up, how do you find stocks that are great buys? earlier i was talking about picking off stocks that have pulled back from the new high list because you get a cheaper entry point in a stock that's been a proven winner. i said you didn't necessarily want to buy names right off the new high list because you're paying too much for them. you can usually get a better deal if you're patient and wait for some weakness, maybe down 5%, 7%. given how volatile the market has become, there are very few occasions when buying a stock right off the new high list is

justified. sometimes the stock is so hot, you got to buy it whenever you can because it may not be going lower anytime soon. you won't find these often, but when you find them, you have to remember not to buy all at once. if you want to buy 100 shares of stock, you think it's got so much mojo it woengt get a pull back from the high, go ahead and buy 25 shares. and find another stock. believe me, this is always another stock to find. i've got an exception where it's okay to buy a stock right around its high. if you see insiders buying the stock when stock's up a lot already, i'm going to give you a total green light. now, it is a rare thing to see happen, but in my experience, it's rarer still that this method of picking stocks doesn't work out. see, i love it when insiders buy after a decent run because that's a great sign of confidence that they think the run's just beginning or there's a big runway ahead and they are sure that it's long-lasting.

remember, you can't flip a stock immediately if you're an insider buyer. you have to wait six months. government takes away the gains otherwise. it's the law. so these people are seeing things they like that aren't going to disappear in six months. if anything, they haven't appear yet. normally insider buying ranges from being meaningless to a small insufficient reason to buy a stock. a lot of times they want to give the impression of confidence, create an illusion they're doing better than they really are. insiders are not stupid. they know if they're seen buying their own stock, the market will smile upon them, so they play the system. hey, that's fair. but it means we ignore most tiny insider buying because it could be kind of flim flam. we also used to call it painting the tape. kind of makes it look better than it is. that said, when you get truly colossal insider buying, even if it's not at the high, you might want to take another look at the stock in question because it's a pretty powerful endorsement when the insiders buy a whole lot of stock. it's really the volume of the insider buying that declares its

sincerity, but we're only focusing on one sort of insider buying right now, stocks that have been running and aren't her received as historically cheap. these are not value stocks. there's nothing more ignorant yet telling than when an insider backs up the truck for his own stock when it's been running at a pretty good clip. we're so darn confident it will keep going higher, that we're going to buy some shares hand over fist right now. we're not waiting for a pull back, no. arrogant, sure, but this is bankable hubris, corporate insiders aren't fuels with some notable exceptions. if their stocks are on a tear, let's assume if they're buying, they probably do know something. not everyone deserves the benefit of the doubt in this business. after the market melt down at the end of 2008, i know that i allot of people think that all ceos and executives for that matter are a bunch of crews, fra frauds, especially those who got

burned owning say the old fannie mae or lehman brothers. that's the wrong lesson to draw from the crash. healthy skepticism is one thing, a total unwillingness to believe in anything positive is something else entirely. you need to be willing to extend some measure of trust to people who own companies that you own shares in. what else could be going on in spur buying? we've seen it in airlines, rental cards, entertainment. pers these executives are buying stock because they hear the footsteps. maybe they've been contacted by some other company and turned that company down. spurt overtures happen all the time and -- of course they have to disclose anything that's a serious bid. but a lot of times you just get a phone call and say no, bye. well, they do that because the company is worth more than they thought. maybe they think the company could be broken up like the old tieco or fortune brands or ga net. maybe they see the ability to create value and want in on it

themselves or maybe the stock has run just a bit but they don't think the run is over because they recognize how much better the company will be when it's divvied up. for us, buying after big runs can be a bit reckless and lazy. most investors are smart enough to wait for a pull back before they pull the trigger. insider buys after zeent runs tells me these guys don't think there will be a pull back and there's nothing more bullish than that. sure i want to wait for a pull back, but that's the best of all possible worlds and you usually don't get that scenario. bottom line, one more method of cramer's madness, when you see insider buying on a stock that's already at a solid run, you probably want to be buying too. bob in new york, bob. >> caller: jim, steeler booyah to you. >> steelers from new york, all right. well, why not? what's up? >> caller: jim, i have a question about interest rates. when the fed raises interest rates, good companies with attractive dividend yields and growth prospects suddenly rapidly go out of favor. can you add some clarity to why? >> well, because people extrapolate, bob.

once they see rates start to go up, they figure they're going to go up for a while. if that's the case they want to get out of what they perceive as being a risky yield, which is a stock yield, and go into what's a certainty, which is a bond yield. so it's all relative basis. rick in california, rick. >> caller: booyah, jim. >> booyah, rick. >> caller: how do i add to a position if my stock hasn't gone down to the average -- >> no, you can't. i'd say the vast majority, not just a few times, not just the majority, but the vast majority of times, we pay up above our basis. well, i got to tell you. >> sell, sell, sell. >> you got the picture. remember, here's another method to my madness, when you see insider buying in a stock that's already at a big run, think i might want to be buying here too. after the break, i'll try to make you even more money. what powers the digital world? communication.

like centurylink's broadband network that gives 35,000 fans a cutting edge game experience. or the network that keeps a leading hotel chain's guests connected at work, and at play.

or the it platform that powers millions of ecards every day for one of the largest greeting card companies. businesses count on communication, and communication counts on centurylink. voiceohigh blood pressure,sk all day can cause neck and back pain it even slows your ability to burn calories and lose weight. man #1 on camera: fortunately, there's a solution inmovement, the affordable, standing desk. woman #1 on camera: an inmovement standing desk lets you move effortlessly between standing and sitting throughout your day. woman #2 on camera: inmovement standing desks come fully assembled and fit right on top of your existing desk. man #1: (on camera/voiceover) inmovement standing desks are height-adjustable. woman #2: (on camera/voiceover) and, unlike many standing desks, inmovement desks come in a variety of colors man #1 on camera: your body gets used to moving between sitting and standing very quickly. woman #1: (on camera/voiceover) and once you experience the energy boost you get from standing more, you won't go back to just sitting. woman #2: (on camera/voiceover) people using standing desks report less back and neck pain.. man #1: (on camera/voiceover) ...lower blood pressure, more energy,

higher productivity and better concentration. voiceover: and for a limited time, get free shipping! and remember, every inmovement desk comes with a 30-day money-back guarantee, so you can try it risk-free!! voiceover: call or visit inmovement.com and use promo code freeship. that's inmovement.com. you're in luck because you called cramer on a good night. i'm not going hope to sip that cheap scotch on my dirty linoleum floor. by the way, i got to apologize to due ars w i once suggested was the linoleum scotch of choice, it's actually pretty good stuff. have you had any of the 18-year-old jamison's? don't waste that one on the dirty linoleum floor. tonight i'm in a great mood,

maybe a manic mood even. let's say i'm pretty darn productive when i'm in high gear. so revved that i'm revealing many secret methods to my madness. pull out a pen and paper. start jotting some things down because it could be incredibly useful. i'm giving you some of the best ways i know to pick stocks. i'm teaching you how to invest in trade like cramer. if not to be like me, because i've got some emotional things cooking here, but at least emulate me. so far i've gifng away two of the tools i used at my hedge fund, still ute for my charitable trust, where i play with an open hand, allowing subscribers to see all my trades before they happen. i look for stocks that have pulled back from the new high list. that's not a reason to buy in itself, but it's a great place to look for potential buys. and i like to buy stocks that have had big runs and yet still have substantial insider buying because it says the people running the company really believe their stock has legs, and if they believe, there could

be a good reason for us to believe too. but, again, this alone not enough to recommend a stock. you still need to do the homework, to check the fundamentals, to make sure you like the story behind the company before you dive in and buy. what i'm teaching you tonight are really what i call tells. that's right, they're tells. they're signals that a stock might be worth owning, that it's worth your time and effort to go through the boring process of reading through the conference call transcripts and quarterly filings. there are thousands of stocks out there, and any method we can use to narrow down the ones that might be attractive is a method worth haveth. we've talked about insider buying at the high and while i don't usually use insider buying as the only way to determine whether a stock has got it going or not, there's one other scenario wherein sider buying makes for an incredibly bullish tell. that's when a stock has a heavy short position, meaning a lot of people out there have borrowed shares, sold those shares, and are now waiting for the stock to go lower before they buy back the shares, return them to the bank they borrowed them from and collect the difference between the price they sold it first and the price they bought the stock

back later. hopefully they sold it high and bought it low. you can think of shorting as like regular investing but it's in reverse. we try to buy low and sell high. shorts just turn that around. they sell hoe aigh and try to b low. when a stock has a lot of shorts in a lot of people have conviction the stock is ultimately going lower. when you're short the potential down side is infinite. when you're long, the stock stops losing money at zero. shorts lose money when stocks go higher and higher. there's no lid. the other important note about short sellers is if there's a lot of them and a stock all of a sudden gets some good news, we get what's called a short squeeze, and it sounds exactly like what it is. in order to bail or close out their positions, the shorts have to buy. this is what's called covering. when a lot of shorts cover at the same time in a panic, the stock will surge because what you really have is a lot of people desperate to buy the stock, a lot of demand. they have to buy unless they want their years wiped out as so many short sellers had in the

last few swoons when the market refused to quit and went right back up and the shorts hadn't covered or bought the shorts. so where does insider buying fit into the short selling equation? you have a stock with a high short interest. that's a sign that much of the flow has sold short. then some of the people who run the company starts buying shares for themselves or an outsizer like coca-cola. santa fe with regeneron takes more than a 10% stake indicates it wants more. those were three situations where the shorts kept shorting and they got crushed. they should have done buying, not shorting. it's almost like drawing a line in the sand. they say our stock goes this low and no lower. this is a combination of insider buying and a stock that is heavily shorted, one that often leads to a short squeeze that sefrntds the stocks might higher. shorts are smart, much smarter for the most part i have found than what we call long side investors, but they usually don't know more about a business than the insiders who run it. if a lot of people are shorting

a stock and management is buying it in sizeable amounts, then you should start doing some homework, and usually you're going to want to side with management. and then you can ride it higher and higher and higher in true jackie wilson style. i rag the santa fe and coca-cola boy and monster as being inside like buys. the shorts panic and put the stocks higher in desperation to cover their positions and you make money. similarly -- that's another line in the sand situation where management is contradicting the shorts. companies ovies often repurchasr own shares. i teach you how to identify the bogus buy backs in my charitable trust bulletins at actionalertsplus.com that i issue multiple times each day. a substantial new buy back in the face of shorts is often a good reason to take a closer look at the stock. now, a note of caution here. you have to be very careful in dealing with a company that's in the crosshairs of the shorts, especially when people are nervous and the market is in bad

shape. the shorts have the ability to wreck the stocks even if the fundamentals of the underlying company are fantastic. these days the shorts have more fire power than ever, i believe thanks in part to an sec that now under both democrats and republicans looks the other way when shorts raid stocks with bogus stories about accounting issue and management blunders. plus, it's pretty easy to do as a stock owners no longer have the benefit of rules that slowed short selling down and made it harder to create bear rates. rules like waiting for what was known as an uptick or a higher price before you could sell short stock. that was a good rule that somehow the government talked into abolishing in order to make trading quicker and more fair for the shorts. a lot of good that did for us. it's the leading reason why so many home gamers have left the building. we established these rules in order to stop the fomenting of panic, something that happened during the great depression, but the government in all of its wisdom seems to think the panics are no longer possible. so we have to be more careful than ever not to succumb to

panic. that's been orchestrated by short sellers. without protection, the shorts were able to run wild and practically assassinate the stocks of many financial companies during the crash of 2008 until the generational bottom in march of 2009 put the bulls back in control. but the shorts came back with aggressive negativity after many of the big runs in the last few years, this time using methods of mass destruction like double and triple etfs. when you're dealing with a heavily shorted stock, you have to learn to tread carefully. you can still find great opportunities in stocks where the shorts have overreached and the insiders are buying, but before going into one of these situations, i have to warn you that the balance of power has shifted in recent years in favor of the shorts against regular individual investors. that means even if the short sellers are wrong short term about a company's prospect or even long term, they can still demolish the stock, especially if they mount campaigns against the stock like with herbal life and bill acman. the hedge fund manager was

taking on the company. just don't underestimate the amount of damage the shorts can do. although remember the best protection against these raids is offer from stocks that pay good solid dividends. short sellers have to borrow stock to short the stock, and that means they have to pay the dividends to the real owners. that's a terrific deterrent for those who are pernicious in the way they go about shorting. when you see a stock with a big dividend that's being attacked by shorts and the dividend is going higher, what a terrific place to be, especially if the insiders are snapping up stocks too. insider buying plus heavy short interest can equal raging buy as long as you avoid situations where the shorts are determined to crush the stock at any cost. think herbal life. speaking of herbal life, let's go to herb in florida, herb. >> caller: jim, great to talk to you. i'm an action alerts follower for at past few years. i wish i had gotten on board a lot sooner. >> you're very kind. some tough days.

thank you for supporting us. what's going on? >> caller: i'm recently retired. i've saved up well over my lifetime, and i've looked at what the longevity of my savings. as long as i manage things well, i'm in good shape. >> good. >> caller: my concern right now is in allocation. i have 65% right now allocated in stocks, split about halfway between what i follow you with and the other in index funds. >> okay. >> caller: and then the remainder is split between bond funds and cash. you know, the cash fluctuates up and down. >> sure. you're doing it exactly right, just like we teach you in action alerts. >> caller: well, i've been paying attention, then. >> thank you. >> caller: thank you. >> you've got it dead right. you're doing exactly what i like. i have no criticisms. all right. trying to spot a raging buy? here's a tip, when you see ing

sider buying plus heavy short interest and then a buy back and a dividend, wow, you got something. just be careful to avoid situations where the shorts are simply determined no matter what to crush not just the stock, but the business itself. stick with cramer. a used car,

truck, suv. that's smart. truecar can help. it's great for finding a new car, but you already knew that. it's also great for finding the perfect used car. you'll see what a fair price is, and you can connect with a truecar certified dealer. so, no matter what you're looking for... there it is. this is how buying a used car should be. this is truecar. ♪ i know the rep on me, at. it's that i'm all about trading. >> sell, sell, sell. buy, buy, buy. >> that i'm all short term.

that's entirely untrue. this show has adjusted over time. it's morphed so to speak. it's really about longer term invest, not trading. if you watch it anytime in the last five years, you know that. however, knowing how to trade can make you a better investor, and trading about a core position is one of the most basic and useful disciplines out there. many people have asked me what do i mean by it? well, in markets like this one when there are periodic swoons after big runs, it does help to trade around. what's it mean to trade around a core position? let's go through it step by step. first you need a stock. pick one that you like, one you've got an opinion on, one that you really want to buy as it goes down. finding a stock that you believe will be going higher over the long term is what matters even as you accept the fact it could go down in the near term. what you're really looking for is a great company with a stock that could get tossed around by market volatility but that you ultimately believe will get higher if you're patient. so if you were just investing, you'd set up a position in the stock, buying in increments

because we all know that buying all at once is arrogance, and that's not going to be allowed on "mad money." why don't we use google as an example because i like that stock very much, have since it became public. although only over the long term will i tell you i like it because it's very volatile during the short term. let's say you want to own 100 shares of google over time, the way to set up that position would be to buy 25 shares four times over a period of weeks or even months. let's say you want to trade. i know many of you want to but you feel discouraged because you remember how all the amateur day traders got blown out when the tech bubble burst. the key word was amateur. you home gamers can make money trading if you do it right like a professional. in the old days when commissions were higher, that wasn't true. the commissions would eat into your profits and it wasn't worth while to trade. that hasn't been the case for ages. let's come back to our core long term position strategy. we own 1 hurn shares of google and we want to own it long term.

let's say it's trading at $500 a share. every time the stock jumps 25 points, or 5%, if you want to trade around position to preserve capital, you might want to sell 25 shares. you save a little off to bring in some profits. once google reaches 525, you would own 75 shares. you keep scaling out the same way although always i love the stock. i would like to keep that last 25 shares. then you wait until something happens to knock the stock down to where you bought it as long as the news isn't specific to google, there by damaging google's prospects. it shouldn't be unreasonable given we're in a world that stock can get crushed by all factors that have nothing to do with the fundamentals. as the stock comes down, you buy it back in increments. let's keep using increments of 25. if google comes back to 500 from 575, you buy 25 shares. you could even take your winnings this way and help buy 25 more if it cams going lower, and you only got to swell 25

before the swoon. this might appear to be small potatoes, up 5% to share 25 shares, and repeat the process up on the way back. but over time, your profits can add up. remember, you don't have to do anything. you can just hold it. that is fine with me. but people ask me what trading around the core position and that's what it's about. a lot of people think trading is incredibly exciting, and it can be. but if you're good at trading around a core position, it's right to be bored. there's nothing exciting about the plan i just laid out. all you're doing is watch the stock move, trimming up or adding to your position. conjure the image of trading as something reckless and irresponsible. trading around a core position is the height of prudent. of course this whole trading around the core position tactic works best with stocks at lower prices where you can buy more stock and have more room to buy more. but i wanted to show you that it can work even with google, with a $500 stock. again, if you own a stock and you like it, you don't need to do anything. this is in response to many questions on twitter and in my career about how i used to trade

when i was at my hedge fund. trading around a core. obviously you can scale these numbers depending on how big your position. the basic idea is to avoid putting yourself in a spot where you have too much on the table in case the stock gets s.w.a.t.ed down or too little to take advantage of any upside. trades around the core is a bas basic trading strategy that you can use, even those of you who find the notion of trading as opposed to investing to be abhorrent. if you want to take your trading to the ultimate level, i recommend you read two chapters on odd and getting back to even. i used to think before options action, the tv program, that some of this material was too sophisticated for tv. i no longer think that, and you have to be willing to put in some extra homework, but if you have the time and inclination, it's more than worth the effort. the stock i used to demonstrate it happens to be google, and you can e how my strategy of what i call stock replacement and getting back to even works better with options than with the common stock. it's kind of like a cheaper and

less risky way to what i call creating a google at a more reasonable dollar amount price than it currently sells at. this stuff is hard. but i am reacting to the requests i get all the time at twitter as many want to know about the option strategies i favor. we can't use options for action alerts plus.com so i'm old time on this stuff. by the way, if you don't understand options at all, let alone the sophisticated strategies i lay out in getting back to even, in my first handbook, real money, that's a handbook of what i taught people who went to work at my hedge fund, i have what an option is. bottom line. now, you know the basics of how to trade around a core position if you're so inclined. yet another method to my madness, one that allows you to generate lots of small gains that add up over time. don't need to do it, but now you know how. stay with cramer.

[phone buzzing] some things are simply impossible to ignore. the strikingly designed lexus nx turbo and hybrid.

the suv that dares to go beyond utility. this is the pursuit of perfection. i've got one more trick to teach you tonight, one more method to my madness. this time i want to talk selling. >> sell, sell, sell. >> which along with when you buy, what price you buy, may be the most important and definitely the most undervalued tool in your home arsenal. how do you know when to sell a hot stock? how do you get out before the party ends so that you're not one of the last people around who gets stuck cleaning up the mess? this is a question that needs to be answered because there's a lot of money to be made owning hot stocks with lots of momentum. but when you play the momentum game, you have to know when it's time to leave the table. that's what's crucial. there are always naysayers, and eventually the naysayers are

almost always proven right sooner or later all hot stocks implode except for the ones that over time are able to develop into multiple business streams. this topping process happened big in recent years with stocks as diverse as chipotle or smaller biotech stocks. they kept blowing up. but it usually occurs later rather than sooner and all negative talking heads that kept you out with their recklessness actually cost you great opportunity to make money. people shy away from these stocks because they don't know where they're going to top out. that's understandable. i'd be afraid to buy them too if i didn't have a discipline that let me know when to get out. lucky for you i do have one, and you're about to learn it. first when i'm talking about hot stocks, i really mean hot speculative stocks. usually these stocks begin with very little research coverage from the major wall street brokerage houses. these names can go up for a very long time. they can catch fire and stay on fire for years without sponsorship. the key to figuring out when it's sometime to sell is by

watching the analyst coverage being rolled out. a good rule of thumb is once one of these hot stocks gets discovered and then has at least a half dozen analysts, six analysts covering it, then the run is going to begin to peter out, not get stronger because it is going to be too big and too well known to continue to go up the way it has. it's the rare stock that doesn't behave this way. you can find out how many guys own a stock by looking at it anywhere on the internet. this isn't hard to find information. it was at one time, not anymore. this formula has worked for me for 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, and names don't get hot followed and pushed by everybody. they get hot because they get discovered by everybody. hot stocks get tapped out when there's nobody left to be attracted to them, when all the people who would be interested in buying them have already bought. they came out of nowhere, attracting more and more attention, more and more backers, and eventually everyone who wants a piece of the stock has a piece of it. when that happens, the run is

over, people, and then you must ring the register and go home. let me give you a great example. hansen natural, the old monster beverage. that was the name it used to be, which was one of the hottest stocks in 2004. hansen went from $18 in change at the beginning of 2005, to $200 when it peaked in july of 2006. the whole way up, there were people telling you that hansen, a beverage company that got its momentum from its monster energy drink, was a fad, had to dry out, had to crash. well, it did do that, but as often is the case, it took years for the momentum to run out, not days, not months, not weeks -- years. i called the top in hansen back then because i know how these stocks worked. it peaked in july of 2006 in part because of the fact that the company did a five for one split, and even though splits aren't supposed to do anything, this encouraged people who had been in hansen for a long time to take something off the table. but there was another reason i believed it would peak, and that

was it picked up its fourth in when goldman sachs started governing it. you had two months to sell because gold man's initiateiation and the stock's peak. prunsz dictated that we sell once the stock had four analysts on it. better to clear out early with your winnings than wait for them to fade away. and hansen, as with pretty much all of the other stocks, hot stocks started to cool off once it hit that critical mass of analyst coverage. once it fell off the radar screen, people stopped talking about it and analyst coverage dwindled again, the stock recharged, and ultimately coca-cola bought a huge stake in its equity, which sent it up even further. it was really a testament when analysts stop following a company or do so on a desul tory basis, the company's earnings start -- it turns out that the fad drink ended up vanquishing

the company from major sew za brands that failed to materialize and ultimately the biggest one joined it rather than keep fighting it. but again as analyst coverage gained, there's so many analysts started covering it, the stock peaked. when they dropped it, the stock bottomed. that's how it works. small speculative, steamy hot momentum stocks are often worth owning, but you most know when to sell and that moment comes when you see too many analysts jumping on the bandwagon. use four as a good rule of thumb letting you know when to start selling. stay with cramer. ♪ something new has arrived. ♪

uniquely designed for the driven. ♪ introducing the first-ever infiniti qx30 crossover. infiniti. empower the drive.

some of the tweets you've been sending me. here we go. our first tweet is from @jason, who asks what are some resources you recommend for technical analysis and indicators for the novice. i get most of my technical analysis from realmoney.com, and that's one of the things that i did in get rich carefully was pick the best technicians who explain what these terms mean and then show you them in action, and that's what i did in that book. next, a tweet from @red square 27, #get a plan. if i'm actively trading my roth,

should i have my money in an index fund or stocks or both. stocks, my friend. by the way, let's be very clear. that's not the case with 401 k, which is why i like the ira option so much more. next @hall g 8957. jim, i've watched you daily for over ten years, daily. you are awesome. you have helped massive amounts of people. thank you. i cannot tell you there are so many people who come up to me and they apologize that they want to tell me that they like the show. excuse me, jim. i don't want to bother you, but i like the show. no. when you say excuse me, i usually think you're about to say, boom. no. don't excuse yourself. i am absolutely thrilled that you say you like the show. it means the world to me. i sometimes figure what the heck do i come out here every night for other than the fact that you like it? @clear baffles tweets -- @clear baffles? okay. tweets the following. please discuss balance between adding to a position and selling

your cost basis. i like to lower my basis by selling. what i do is as the stock goes down, i buy, and then as the stock goes up, i like to sell the higher basis. market. i run a charitable trust, so i don't have to worry about tax -- typically what i'm trying to do is lower my basis as an owner. why do i want to lower my basis? because i don't like chasing, and i do like buying at a discount. and lowering my basis is the equivalent of getting a stock of a company i like at a cheaper price than i got it before. that means i'm getting a bargain in the fundamentals are still good. next, @jay doll tweets, i like his stock advice better. wyoming has more oil than i have. wyoming wins. @most underscore jeff asks our next question. i have a long list of research companies i like to invest in but don't have money for all of them. how do i narrow my list? hashtd get a plan. this is very ease. what you got to do is you got to figure out, okay, which are the

best at which levels? if you like them all, try to figure out what level would be the one where you'd really want to buy something, and then stick by it because once stock's coming down, people run from their levels instead of to them. stay with cramer.

♪ we're drowning in information. where, in all of this, is the stuff that matters? the stakes are so high, your finances, your future. how do you solve this? you don't. you partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. morgan stanley.

mobility is very important to me. that's why i use e*trade mobile. it's on all my mobile devices, so it suits my mobile lifestyle. and it keeps my investments fully mobile... even when i'm on the move. sign up at etrade.com and get up to six hundred dollars. it's not just a car... it's your daily retreat. go ahead, spoil yourself. the es and es hybrid. this is the pursuit of perfection. >> i like to say there's always a bull market somewhere. i promise to try and find it just for you right here on "mad money." i'm jim cramer, and i will see you next time. taking an invention from concept

to reality takes hard work. - i think we've got to take a bunch of weight out of it. - [deanne] and a willingness to do it over and over again. - i've been at this over 16 years. - [george] but 98 percent of inventions never make it to market. - all i see is problems, problems, problems, problems. - [deanne] to beat those odds, inventors need help. - i've been ready to take this to a totally different level. i just need help. - [deanne] that's where we come in. - curtis! - oh my god. - hey! - i'm deanne bell, a mechanical engineer and mentor for inventors. - i'm george zaidan, an m.i.t-trained chemist and advisor to startups. - [deanne] and together with our design and engineering team, we take inventions to the next level. - how cool is that? - holy cow. - [george] we'll share our expertise. do you have a chemist on the team?