When you buy an index with no leverage you can and should buy more of it the further it falls, but when you introduce even the tiniest amount of leverage then that rule should be flipped; you should only pyramid up on a position that is in profit and never add to a losing position.
I'm intrigued by this alteration of the dominant strategy due to leverage. I suppose that is because the risk/reward line is so much steeper when leverage is used that the risk of a "game over" insolvency event is so much closer. Additionally, because the upside is so steep, you are trying different trades to find one that will go up and up until you are rich (e.g. bullish on TSLA 3 months ago). And the only way to do that is to quickly cull the losing attempts before they become "game over" events. Is there anything I'm missing with regard to this gambling strategy?
It's the difference between investment and speculation.
I'm a bit old school, so I believe that the definition of an investment is that it must have some objective intrinsic value. When you buy an investment you're buying it to earn a return from it's future cashflows, or however else you choose to value it.
But if you are speculating you are not buying it for its future value. You are buying something because you believe that someone will pay more for it tomorrow than you are paying today. Someone else has to take the other side of that trade, and you can't both be right and benefit. One person's gain is another's loss. So if you start pyramiding losses then by definition you are making the person on the other side of the trade richer and richer.
I don't always agree with everything Buffett says, but way back in the Intelligent Investor, Ben Graham and by extension Buffett have always been very clear that they consider anything bought with borrowed money to be speculation, which is a position I concur with. Of course, there's nothing wrong with trying your hand at some speculation.. the odds may be against you, but some people will be good to be long term profitable.