Things You'll Need:
- A stock account with the ability to short sell.
- (If you don't have this, don't worry, I'll help you there, too.)
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Step 1
First, we need to understand 2 things: the Cramer Effect and Short Selling (or 'shorting'). If you already know what these are, move on to step 3.
The Cramer Effect happens the day after Jim Cramer recommends a stock on his CNBC show Mad Money. The stock will experience a small (artificial) increase in price the following day. This increase in price is not related to any real value that the company or stock has generated. It is simply caused by people purchasing the stock just because Cramer said to. When a stock is purchased by a lot of people, the price goes up...simple supply and demand. -
Step 2
The second term was 'short selling'.
Short selling is just like buying and selling a stock normally, except that you sell a stock that you don't own when the price is high and buy it back when the price is lower. You basically borrow some shares of a stock from your broker and sell them, later buying some back to replace the ones you sold.
This can be a bit much at first, so here's an analogy:
Let's say that you own a stereo and I found out that some guy will pay me $200 for that very stereo. I also find out that in a week I will be able to buy that stereo on sale at the store for $100.
I borrow your stereo from you and sell it to this guy for $200. A week later, I go buy the new one for $100 and give it to you and keep the difference. That's $100 selling something that's not even mine! What a sweet deal for me!
You can do the same things with stocks. It is a method that makes you money when a stock price falls. You sell while it's high and buy back after the price goes down. -
Step 3
Ok. So, now that we are familiar with the terms, I'll show you how these come together to make YOU some MONEY!
We know that the Cramer Effect artificially raises the price of the stock for a day or so. If that is true, then we can short sell that stock while the price is inflated with some certainty that the price will fall a few days later. Remember? It's just price inflation based on hype. That normally doesn't last long, especially in this instance. -
Step 4
Here's how we go about executing the deal:
Watch Mad Money at night and note the 2 stocks that he talks about the most. (You can also find them online the following morning at various blogs that track his picks.) -
Step 5
After the next trading day starts, you execute a short sell on one or both of the recommended stocks. You want to wait until after buy orders execute automatically right after trading opens. A half an hour should be plenty.
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Step 6
Wait between a day and a week before you 'cover the short' (buy the stock back). This should net you a small profit. Don't expect these amazing returns with this method, but do expect many small returns. With diligence, you'll quickly realize that they add up fast.
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Step 7
There are a few caveats, too, so make sure that you take note of these:
- You usually have to have a margin account with your broken to do a short sell. This usually requires at least $2000 in your account. There may be other requirements as well, so check in your broker's documentation before you start out.
- If the price of the stock that you shorted goes up instead, make sure that you sell it with minimal losses. A short sell actually has an INFINITE possibility for loss. Read up about shorts and how they work before you really dive in. A whole discussion of the subject is too big for this howto, but not hard to understand.
- The advice here may not always work for you, but I think that it will definitely work more often than not. It is seen in the track record of his picks. But, either way I have to put this disclaimer: You do this at your own risk. I am not responsible for any money that you lose using this method. -
Step 8
Please post comments about how well this worked for you! I would also love to hear about any modifications to the system that you made or any things that you paid specific attention to that helped your return.
Happy Investing!
