Before you jump into following Jim Cramer's Mad Money stock picks, it would be very insightful to track his picks so that you can have a detailed and unbiased record of how well they perform, both short-term and long-term. This is also important in order to assess the best strategies to use when considering either a trade or an investment from one of his suggestions.
What one must really understand when looking to invest in Jim Cramer's picks is that although most of his picks are meant as longer term opportunities, however, in the short-term, many of these picks can easily get overbought - especially when all his followers decide impulsively to buy at the same time. This is absolutely the WORST time to consider buying the stock! Although Cramer may be right longer term, the only reason it moved that day is because of his many followers jumping aboard hoping to make a quick buck, and unless new buyers come in very soon for some other reason, the stock will likely trade right back down to where it started.
Consider what Jim Cramer himself is telling you. He will not buy or sell a stock within 5 days of mentioning it on the show. Now, inherent in that statement what he's also telling you is that for a long-term portfolio he doesn't need to act any faster than that. In fact, he can gain valuable insight into the stock based on how it performs after it is mentioned on the show. For example, if a stock jumps after he mentions it, and every time it does try to dip back new buyers come in and bring the stock back up, that is an indication that his thesis - possibly long-term - but now more importantly in the shorter term - may very well be "right on the money", and possibly a good time to initiate a position.
If, however, the stock merely jumps and falls right back with little or no new buying interest coming into the stock, that is also just as telling that perhaps this stock is just not ready yet, and now anyone who jumped aboard into the spike will bring the stock lower as they all liquidate their positions at increasingly losing prices. These will likely be the same people who the go on to send Cramer hate-mail. When all of this pressure capitulates into a panic in the stock, THAT is the time to consider your long term stock purchase/investment!
Through analysis of his picks at sites such as http://www.booyahboyaudit.com and http://www.madmoneyrecap.com, combined with the right shorter-term tools and analytics (try the free alert and charting tools at http://www.yourika.com/tymAlertsMadMoney.html and http://www.yourika.com/MadMoneyCharts.html), you'll discover that it's best to wait for the dust to settle after a stock gets pumped up and watch for a few days to see how trading unfolds. In fact, it may even set up an excellent shorting opportunity for more advanced traders to consider.
Cramer does have many good ideas and he definitely knows about stocks, and for that I too enjoy watching him and listening for new ideas that may interest me. But add a little common sense to the equation and you are on your way to a real winning plan.
Alexander Paul Morris, the designer and creator of tymoraPRO, serves as President of Yourika Corp. He is a trader, programmer, and mentor widely renowned for his ability to analyze market behavior and to program systems and alerts that assist in capturing trading opportunities based on patterns of fear and greed that continually repeat themselves in the marketplace. A 14-day free trial of the platform is available to those visiting http://www.yourika.com.