Cramer Bounce, How The Cramer Effect Works in Practice, And Why It Often Results in a Greater Than 3% Gain
I was watching CNBC this morning while drinking my customary black tea, and eating my common breakfast of Eggs, Bacon and Toast, and I realized that I actually used to actively trade based on what’s known as the Cramer Bounce, or the Cramer Effect, and of how it works in short term strides in the market, often moving securities as much as 3% in the morning hours after Jim Cramer’s show on CNBC. In this blog post, we’ll look at why this doesn’t always work, and why I actually would not recommend trading on this unless the trade and the stock has sharp fundamentals, and a lot of momentum and news to back it up on top of that. For more information be sure to subscribe to our blog for additional details and information, and to comment with your opinions!
Other top technicals I often trade on include:
The 50 day moving average
The 100 day moving average
The 200 day moving average
Trading the Relative Strength Index
Trading news coverage
Algorithmic trading software’s
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How the Cramer Effect Works, Benefits of Trading the Cramer Bounce
The Cramer effect works in the following manner. Say Jim Cramer announces a security is going to be making big moves on his popular late afternoon CNBC show “Mad Money.” In my case, I actually benefitted around 2% once in a 2 day long trade of Lumber Liquidators (when I was 18 years old and first starting to dabble in trading) as on CNBC Cramer was talking about how the stock had a very high earnings report come out, and about how he thought the company’s long term vision and new business acquisitions could possibly make this stock a 10 to 15% increase over a year long period of time. The next day, the stock was up 2.8%, and I cashed out my gains for a cool $280 gain (I only had $10,000 to my name at the time, and it was my life savings from birthday cards and Christmas presents up to that point.)
This is typically textbook how the Cramer Bounce works, however even with my own personal anecdotal experience on the Technical Analysis indicator, I would NOT recommend trading on this, and would highly recommend NOT trading on this, and instead sticking to purchasing well-known blue chip stocks with good fundamentals, or, better yet, making the equities position of your portfolio 100% index funds, including value index funds, the S and P 500, Global Index funds, and the like, you’ll be a much better return over time than actively making a trade every single time Jim Cramer has a show.
Final Thoughts on the Cramer Bounce, Use Caution When Actively Trading on This
Overall, I would use caution when trading the Cramer Effect, however it is definitely something to keep in mind if you can use it as an “add on” when making a trade, or in other words, if you have this as well as like 10 other factors going for you on a trade. For instance, if there is an overnight announcement that Abbott is starting distribution for a government funded vaccine, and the second place vaccinator stock did not get the government contract, and you have the October Effect on your side, and Cramer announces on Twitter that the stock will be plummeting, and you have a stock account type where you can place a ‘pre-market trade” THEN and only then can you purchase the stock. At this point, you aren’t speculating too much, and it’s almost irresponsible for you to purchase the security and take your profits! What do you think of the Cramer Bounce? Comment and let us know, and remember to subscribe!
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