I'd like to thank Phil Brooks for writing this up in response to a query on the Atlas Forum, and allowing me to share it here. Phil is a VERY talented modeler and I'm proud to be able to share his work here.
I usually Photoshop digital smoke in two layers- for the base I use the airbrush tool (using a soft airbrush pattern set to about 50 percent flow) colored dark gray. I use circular movements, overlapping to make the smoke darker and thicker. At this point it's pretty harsh looking and cartoony. Next, I make a second layer above the dark smoke and airbrush very light almost white using a smaller brush size to make highlights and give shape and depth to the smoke.
At this point, the smoke looks terrible! Take both layers and make them transparent, experimenting with the sliders until you like the result. You can also use the eraser tool with a soft edge to trim and shape the smoke until it looks like it's coming from the stack.
Playing with the transparency is the key- if the background is dark, keep more of the highlight layer, and if the sky is the background, you can get away with thinner smoke and hardly any highlights.
I use a third layer for steam, painting pure white and using less transparency.
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