by Youko (#72)
Program used in the making of this tutorial was Photoshop CS5
which you are able to download as a free trial version from the Adobe website.
Previous version from PS shouldn't give any kind of problems, though I've been told Elements doesnt support folders.
[ PSDs ]
Firts of all, make sure both parent's PSD are in your possesion.
A breeding friendly PSD is essential. But what is a "breeding friendly" PSD you may ask?
Basically, it's a well-made PSD, in which everything has it's own layer (say, line edits, color, shading, highlights).
Let me show you:

See how everything is seperate and has its own layer? In adition, folders will make things more organized, as well as easy when it comes to move one edit to another PSD.
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[ Getting Started ]
After the PSDs are ready, let's find ourselves the guinea pigs for tonight, shall we?

Make a list of the general lineart edits, markings the parents may have.
This always helps me to plan the babies ahead, as well as to make a good mix of both parents and not to run out of ideas after the second predict.

And we are finally ready to start!
You will want for one Gen 2 to have something from here and there, and for that you will be choosing as a base one of the parents' PSD and will take edits/markings from the other. To move one layer or one folder from one PSD to another, just select the layer/folder you wish to move and simply drag and drop it in the desired PSD.

What you just moved wont be placed correctly, so remember to fix that.

Folders come in handy when moving edits from one PSD to another without having to worry of missplacing the lineart over the base, needless to say, the shade and highlighs layers.
Same as moving a layer, it wont be placed correctly.

After you placed everything where you want it to be, the resulting image could look something like this:

Now that you are done edit and marking wise, it's time to start with the coloring!.
But before starting, make sure all layer's opacity lock is LOCKED.
If not, this is how you will do it...

It's not likely that you will be re-doing any marking (but sometimes you will), so re-coloring them is basically what you will have to do. Locking the layer's opacity will prevent you from going over the lines.
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[ Color Picking ]
For this part, you can either use the default colors of the parents or make a new mix overlapping said colors to create new ones.

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[ Coloring ]
When coloring, I always like to get everything out of the way, as well as to have my color palette on hand. This way everything wont look so messy.
To do this simply hide the layer you aren't going to touch yet (those layers being shades, highlights, textures, etc...).

Resulting Image:

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[ Attention to details ]
At this point, you can consider yourself done, right? WRONG!
There are some details, tiny little details that, if you take the time to work on them, not only it will make your gen 2 prettier, but also will increase it's value in the already cluttered market.
- COLORING THE SHADING -
Coloring the shading will bring up the colors and make that washed up look the grey shade gives, disappear.
Use the eyedropper to get the base color. From there, you can pick your shading color, which will be a much lighter version of the base.

- COLORING THE LINEART -
Surprisingly, this is what it will make it look actually finished, like the cherry of the cake.
Use the same method to pick the color for the lineart like you did for the shading, but instead of looking for a lighler color, look for a darker one than the base.

Though, I understand sometimes this can be rather annoying.
There's a quick trick that will do the effect.
To do so, you only need to pick a grey color to color all the lines, and set the lineart layer's properties to MULTIPLY as shown bellow:

It wont look as good, but it will make the trick.
Repeat all this hassle 3 more times and you will be done!

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Don't...
If you want to get your predicts accepted, avoid these few things (:
Exaggerated for your convenience~
... make up new colors out of nowhere.

... use eyes/aaccessories/tiny little patches of colors to color the whole Gen 2.

... use 1 edit and all predicts.

... make exact copies of the parents.

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Disclaimer
No aywas were harmed in the making of this tutorial XD