Quarterly Theory Strategy

June 23, 2026

•

Trader Daye

Trade correlated pairs using SMT divergence across 90m quarters. Use engulfing or PSP entries with fixed SL and clean 3R TP.

The Quarterly Theory SMT Strategy combines two powerful frameworks: Quarterly Theory, a time-based market cycle concept coined by Trader Daye, and SMT Divergence, the “crack in correlation” between two highly correlated assets. The core idea is that markets move in predictable four-part cycles across every timeframe, and when two correlated assets fail to confirm each other's high or low at a cycle boundary, it signals a high-probability reversal. The strategy is traded on the 5-minute chart using 90-minute quarters, primarily on EURUSD and GBPUSD during the London session, or ES/NQ during the New York session.

The specific variant used here is Sequential SMT, SSMT, a divergence that occurs between two consecutive 90-minute quarters rather than at a single point in time. When SSMT is identified, the trade is placed on the “highest probability pair”: the relatively stronger pair for longs and the relatively weaker pair for shorts. Entry is confirmed by either an engulfing candle or a Precision Swing Point, PSP, with a market order placed at that moment. The stop loss is set at the recent high or low that formed the SSMT, with a minimum floor of 5 pips, targeting 3R.

How the strategy works

Key concepts

Concept	Description
Quarterly Theory	A framework coined by Trader Daye, an ICT student, that focuses equally on time and price. Every timeframe is divided into four equal quarters, each with a distinct role in the market cycle. The 90-minute quarter within the daily session cycle is the primary unit used in this strategy.
Time cycles	Quarterly Theory applies across all timeframes simultaneously. The six main cycles are: yearly, 4 quarters, 3 months each; monthly, 4 quarters, 1 week each; weekly, Monday to Thursday starting 6pm NY; daily, 4 quarters, 6 hours each; session, 4 quarters, 90 minutes each; and micro, 4 quarters, approximately 23 minutes each for scalpers.
SMT Divergence	A “crack in correlation” between two highly correlated assets, most easily spotted by comparing wick highs and lows. When one asset makes a higher high and the other makes a lower high, or vice versa, divergence is present. Hidden SMT occurs when the divergence is visible in candle bodies rather than wicks.
Sequential SMT, SSMT	An SMT divergence that occurs specifically between two consecutive 90-minute quarters. This is the core entry signal for the strategy. SSMT between Q1 and Q2 signals what Q3 is likely to do.
Precision Swing Point, PSP	A reversal candle formation where two indecisive or reversal candles appear at the same time on correlated pairs, but they are opposite colors, often accompanied by SSMT. A PSP provides a more precise entry signal than a standard engulfing candle and is one of the two valid entry triggers.
Highest Probability Pair	When SSMT is identified, the trade is placed on the pair showing the most strength in the trade direction. For longs, this is the pair that formed the higher low, relatively stronger. For shorts, this is the pair that formed the lower high, relatively weaker. These pairs have a higher probability of continuing in the trade direction.

Entry triggers

After SSMT is confirmed between two consecutive quarters, wait for one of two entry signals on the highest probability pair.

Trigger 1: Engulfing Candle

An engulfing candle forms on the highest probability pair after SSMT is identified. Place a market order at the close of the engulfing candle.

Trigger 2: Precision Swing Point

A PSP forms on the highest probability pair after SSMT is identified. Place a market order at the close of the PSP.

Trade checklist

SSMT identified between two consecutive 90-minute quarters on two highly correlated assets, such as EURUSD / GBPUSD or ES / NQ.
No invalidation conditions present, checked against the rules below before proceeding.
Highest probability pair identified, stronger pair for longs and weaker pair for shorts.
Entry confirmed by engulfing candle or PSP on the highest probability pair.
Market order placed at close.
Stop loss at recent high or low, or 5 pips minimum.
Target 3R.

When not to trade

Right before NY pre-market news, typically 8:30am NY time.
When assets are moving out of tandem, with one trending up and the other trending down.
When there is conflicting SSMT present before the entry signal.
When there are relative equal highs or lows near your stop loss level.

No trade management once entered. Let the trade run to the stop or take profit. If any parameters are missing, trade quality is reduced. Aim to take only A+ setups.

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Can this strategy be used on assets other than EURUSD/GBPUSD and ES/NQ?

Yes, any two highly correlated assets can be used. The strategy is built on the principle of correlation divergence, which applies wherever two assets typically move in tandem. The PDF notes that higher timeframe setups using 15-minute candles with 6-hour quarters, or 1-hour candles with daily quarters, are also viable. FX Replay supports a wide range of forex pairs and indices, making it straightforward to test this framework across different correlated pairs.

How do I know which pair to trade when SSMT is identified?

The trade always goes on the “highest probability pair”, the one most likely to continue in the trade direction. For a long trade after bullish SSMT, this is the pair that formed the higher low, as it is showing relative strength. For a short trade after bearish SSMT, this is the pair that formed the lower high, as it is showing relative weakness. Trading the stronger pair for longs and weaker pair for shorts gives a statistical edge because those pairs are already aligned with the intended direction.

What is the difference between SMT and SSMT?

Standard SMT Divergence is a crack in correlation between two correlated assets at any given swing point, one makes a higher high while the other makes a lower high, or vice versa. Sequential SMT, SSMT, is a more specific version: the divergence occurs between two consecutive 90-minute quarters. This timing element, anchored to Quarterly Theory cycles, is what makes SSMT the core signal for this strategy, rather than a general SMT at any random swing.

How do I get started backtesting this strategy on FX Replay?

The best way to get started is with FX Replay's 5-day free trial of the Pro plan, which gives you full access to the asset library and advanced backtesting and analytics features from day one. After signing up, you can load a session, select your instrument and date range, and start replaying price action bar by bar. The platform includes built-in trade logging, session statistics, and a journal so your results are tracked automatically as you go. Visit the Getting Started section of the FX Replay Help Center for step-by-step guides.

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