I recently bought my 1995 cherokee with 111,xxx miles, and I checked the transmission fluid today and it was black and smelled burned. After I read a lot about whether or not to change the fluid, I've come to think that I Should do the drain+refill and repeat method until its nice and red, since it has high mileage and has probably never been changed. Is this the way to go or should I drop the pan, change the fluid, and replace the filter? Also what is the best fluid to use? Thanks!

 

I would do repeated drain-n-fills, and possibly change the filter on the last fluid change.

Use any name-brand Dex/Merc (Dex III). A lot of folks like Maxlife ATF. NAPA ATF works well for me.