2. Charlie Farming - Money Management

Decentralized Finance (DeFi) has revolutionized the world of finance, offering exciting opportunities for investors to grow their wealth in a decentralized, permissionless manner. However, navigating the DeFi space requires not only a sound investment strategy but also effective money management skills. In our Charlie Farming - Money Management guide, we will delve into the essential principles and strategies of money management in DeFi to help you make informed decisions and protect your investments.

With this guide, it will be easier for you to track and invest based on our Charlie Farming alerts, and choose the appropriate money management strategy for that farming alert!

To maximize your DeFi farming success, we recommend you have two separate wallets.

The first wallet is dedicated to high-risk farms, which often involve new protocols without audits, and which have a higher possibility of rug pulls or scams. Allocating a specific portion of your portfolio to this wallet allows you to participate in speculative opportunities while being aware of the associated risks.

The second wallet is reserved for safer farming options. This includes established protocols with audits and a lower risk profile. By allocating a portion of your funds to this wallet, you can engage in farming strategies that offer more stability and security.

For the high-risk wallet, we suggest you have a maximum of 10% of your total DeFi portfolio, while 80% of your DeFi portfolio should be in your mid-risk and low-risk wallets. Additionally, it is highly recommended to secure both of these wallets with a hardware wallet for added security.

If you're wondering what to do with the remaining 10%, you can participate in Charlie Gem alerts, where we make significant profits in DeFi trading. You can move this 10% to your Charlie Gem wallet and have profitable trading DeFi with us! To learn more about Charlie Gem, check out our two guides: Charlie Gem - A Guide to Risk Factors and Charlie Gem - Money Management.

Before we get started, if you are new to DeFi farming and want to learn more, please refer to DeFi Farming 101 Guide, where you will find all the basics and types of farming in Decentralized Finance. Our next guide, Charlie Farming - Risk Factors Guide, introduces the different risk factors related to our farming alerts, with detailed information on each. In this guide, we will build on these risk factors and provide tips on how to manage your money for each of them.

High-risk farming (Risk 7-10)

As mentioned earlier, we allocate 10% of our total DeFi portfolio to a separate wallet dedicated to high-risk farming. Within this wallet, we invest 5-10% of the allocated amount in each farm. It's important to remember that there is a possibility of losing your entire investment, but successful farming can yield life-changing returns.

Once the initial deposit in a high-risk farm reaches a 2x return, we recommend withdrawing the initial deposit and leaving the remaining investment as a risk-free pocket.

When engaging with high-risk farms, it is crucial to follow our strategy as described in the Charlie Farming alert on our Discord. In many cases, we will sell all the rewards earned from these farms to stablecoins multiple times a day. This is necessary because the rewards can be highly inflationary, and selling them helps to maintain profits.

Having a well-defined profit-taking plan is crucial. Determine the levels at which you want to secure additional profits and slowly exit and sell off/take back the deposited assets from the farm. When it comes to profit taking, it is essential to consider various factors such as protocol hype, chart analysis of assets in your farm, social media activity, and the sentiments of other investors. We will always keep you informed about our exits from high-risk farms, providing reasons and aiming to educate you on becoming a professional farmer.

If you miss an entry opportunity for a farm, avoid Fear Of Missing Out (FOMO) and maintain patience. Opportunities will arise again.

Please keep in mind that these farms carry significant risks, including the possibility of hacks, rug pulls, or scams. Always adhere to your money management plan, stay active on our Discord for real-time alerts, and invest only what you can afford to lose.

Mid-risk farming (Risk 4-6)

Let's dive into the main farming opportunities. Our alerts primarily focus on mid-risk and low-risk farming as we prioritize utility over gambling.

We recommend using 40% of your total wallet funds for mid-risk DeFi Farming. It's advisable to limit each farm to a maximum of 5% of your total assets allocated for mid-risk farming. While these assets can still be volatile, we strive to select those which are well-correlated with each other. Many farms in this category involve staking with longer locking periods or allocating assets across multiple well-composable protocols to maximize yield. It doesn't matter if it's lending, providing liquidity, validator or liquid staking, for every alert we provide, we only ever deposit 5% of the initial amount for each mid-risk farm.

In certain cases, assets in these farms may be locked for a specific period, making it challenging to exit if the trade doesn't go as planned. However, we always choose less volatile assets in the form of native coins for farms with lock-ups. For farms where assets are liquid without any lock-up, it's up to you to set an exit level if the investment thesis goes wrong. This level depends on various factors involving the same points mentioned in the profit taking part and of course your risk tolerance which can range from a loss of 10% to 30%. If you need assistance in setting an exit level, feel free to ask us for help.

Once the initial deposit in a mid-risk farm reaches a 2x return, we recommend withdrawing the initial deposit and leaving the remaining investment as a risk-free pocket.

As with the previous case, having a well-defined profit-taking plan is crucial. Determine the levels at which you want to secure additional profits and slowly exit and sell off/take back the deposited assets from the farm. When considering profit taking, it's essential to consider various factors such as protocol hype, chart analysis of assets in your farm, social media activity, and the sentiments of other investors. We will always keep you informed about our exits from mid-risk farms, providing reasons and aiming to educate you on becoming a professional farmer.

If you miss an entry opportunity for a farm, avoid succumbing to FOMO and exercise patience. Opportunities will present themselves again.

Low-risk farming (Risk 1-3)

The final category consists of low-risk DeFi Farms that offer a secure, stable farming experience. These farms only involve assets from reputable projects, which greatly minimizes the risk of hacks or scams. Impermanent loss (IL) is not usually a concern in these farms, which all but ensures a safe return on investment. Of the amount you % allocate to low-risk farming, it is a good idea to split 60% off for stablecoin farming and 40% for blue-chip or cryptocurrencies with a lower risk profile.

In low-risk DeFi farming, it is advisable to limit each farm to a maximum of 10-15% of your total assets. Diversification is essential in order to mitigate potential risks associated with smart contract bugs. Assets in this category are well correlated, and you may find pools with similar assets, such as ATOM and stATOM (a liquid staking version of ATOM) or stablecoin pools.

In low-risk farms, the decision on what to do with the rewards is up to you. You can choose to reinvest them back into the farm, sell them for other assets, or accumulate them. You can refer to our strategy in Charlie Farming alerts on our Discord, where we describe how we handle rewards.

As for when to exit these farms, it is usually advisable to do so when the protocol no longer provides sufficient rewards, when there are concerns regarding the team's organization or trust, or when there are market or liquidity risks that could affect the farm's performance.

Conclusion

By implementing a diversified approach across high-risk, mid-risk, and low-risk farming, you can maximize your chances of success while effectively managing risk. Always adhere to your money management plan, stay informed through our alerts and guides, and exercise patience to make the most of farming opportunities. Remember that DeFi farming carries inherent risks, and it is crucial to invest only what you can afford to lose.

Analyst opinion

DeFi farmers need to have a clear strategy and stick to it. Without this, even if they make some money, they will put it back into the market. Good money management is the key to all successful Farming in DeFi. If you need help finding farms, or if you want to be inspired by our alerts on the best opportunities to invest in DeFi Farming, join our Discord for all the latest information!

Ondřej Tittl

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