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Create a new layer and choose a name for it - since the first color that I wanted to apply was for the skin, I named this layer 'Skin'. Make sure this layer is below the line art layer.
Click on the Line Art layer again and choose the Magic Wand tool from the Toolbar. In the options window set the Tolerance to 0. Click in an enclosed area where you know you will want the skin color to be. This will automatically select all of the empty space between the lines. To add to the selection hold down the Shift key and continue to click on areas where you want to apply the color, to subtract, hold down the Alt key. Once you have the basic selection of all the skin areas you need to expand the selection. Right now, there are spaces between the lines and the selection area. These spaces will be white and will look bad if you fill the area with color right now. To expand the selection, choose Select > Modify > Expand. Enter 1 pixel and click OK.
This won't get everything, but at this point, you have most everything selected you need. You'll probably need to zoom in, and fill any gaps in the selection (check tight corners, the magic wand usually doesn't get them). Remember, to add to the selection, hold down the Shift key. This time, use the polygonal lasso tool to add to the selection.
Once you're sure you have everything selected, click on the Skin layer in the Layers window, choose the color you wish to use from the swatches or from the color picker (Window > Show Swatches; or click on the Color from the Toolbar to bring up the color picker). Then use the paintbucket to fill in the selection with the color you have choosen. Since this is on it's own layer, the fill won't be hindered by any of the lines on the line art layer. You'll also notice that I filled in the skin color over the eyes as well. The nice thing about layers is that you can add new things above each layer, and hide things under layers as well. In this case, I new that I would be placing the layer wih the eye colors above the skin layer, so I didn't bother with trying to deselect the area where the eyes were located.
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Since the outer 'white' area of the eyes, isn't inclosed by lines on the line art layer, I had to use the polygonal lasso tool to select the area to place fill in with white. I also made sure that the new layer (which I called Eyes) was placed Above the skin layer. And make sure that you are filling in the color on the eyes layer, and not accidentally on the line art layer. It is important that the colors be on their own layers for adding the shading later on.
I repeated all of the steps above for each color I placed. I created a new layer for the hair, and then for the tan borders on the collar and the 'belt', and the gree color on the shorts, buttons, and the collar. Like I mentioned earlier - one nice thing about layers is that you can hide things under a layer. For the shirt, I didn't want to select around each button, the small area where the skin shows through, etc. because it would take extra time. However this is actually not nessecary. The layer with the skin on it, and the layer with the buttons on it are above the layer with the shirt color. Because of this, anything I place on the shirt layer directly beneath the skin color and button colors, will be blocked. So I simply made a quick selection of the shirt, making sure to get the outer border right, but not worrying about borders where other colors were already placed. This saved me some time and effort. It's a neat trick that I use all the time.
Once you finish off with all of the flat colors you are ready for the shading.
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