Cramer's Guide To Profit On Sell-Offs

From time to time, some of the market's most visible and notable stocks will sell off and drag the entire stock market down with it, CNBC's Jim Cramer noted on "Mad Money." But to patient investors, a sell-off offers a golden opportunity to take advantage of "red-hot stocks" that weren't worth chasing on the way up but worthy of a second look when it is "cooling off."

Case in point: Amazon.com, Inc. AMZN. The stock hit an all-time high of $1,093.31 on Thursday before closing the day at $1,046.00 — down from the $1,069.55 it opened at, Cramer noted. This marks Day One of the sell-off, which typically lasts three days.

Day Two of the sell-off happens on Friday; the stock dipped 3 percent in reaction to a disappointing earnings report. During the second day, investors are starting to look at Amazon but should wait another day before buying as the sell-off typically cools down.

On Monday, the negativity surrounding Amazon will continue, but the stock is likely to stabilize and this is when it's time to pull the trigger and buy — but do so gradually, Cramer added.

"Emphasis, by the way, on the word 'gradually,' because with the pessimists feeling so empowered, there's going to be more pain ahead," he said.

Bottom line, the "end-of-the-worlders" typically scream out as long as they can during the first day of a sell-off but are also among the first to be screaming "buy all over again." But most important, is for investors looking to buy a stock on the dip not to go all-in in one shot.

"You need to use this weakness as a buying opportunity, as long as you remember your first buy may not be your only buy," Cramer concluded.

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