The Sixth Cardinal Mistake:
AVERAGING A LOSSThis is usually a holdover from trading stocks. In futures, with five or ten percent margin, averaging a loss can be disastrous to say the least. A typical approach is that after you have bought a future and it drops lower, you might figure that since it was a good buy then, it is a better buy now. You can also justify averaging down by figuring you will have a lower average entry price and require a smaller move to break even. Unfortunately, you will lose twice as much if the market continues against you, as it almost always does.
There are approaches that will allow you to buy a market at one price level, add on at a lower level and add on again at even a lower level, as long as this was your predetermined game plan before you bought the first contract. You must also have an unmovable stop/loss order that takes you out of all contracts.
This mistake is easily overcome by having a strict rule that you never average a loss unless your predetermined game plan called for buying the market at lower levels with an unmovable stop/loss order to take you out of all contracts if it is hit.
Next: The Seventh Cardinal Mistake: Meeting Margin Calls