I used to CG trace my pictures, but I have found that that takes too long, and that it is easier just to use an inked sketch. Once you have decided what picture you want to color, retrace the image onto a clean piece of paper and carefully ink it. It usually helps to use big paper and thin pens, so you can get a really crisp, thin outline. If you mess up the inking, you can clean it up with whiteout or by fixing it in Photoshop. Erase any extra pencil lines and get the inked outline as clean as possible. If you don't like inking pictures, you can try using just pencil. It is possible to get clean pencil lines that work as well as inked lines, if you adjust the brightness/contrast properly. Scan the outline and load it into Photoshop. Make sure your outline is in RGB mode before you continue. To put your outline in RGB mode, go to the Image menu on the top bar, then Mode, and RGB Color.
A lot of people like to keep the outline on the bottom of the picture, and then color on top using layers set to "Multiply". Now, there is nothing wrong with this, and it can work very well, but unfortunately if you do it this way, you have no way to color the outline. Adding color to the outline can give your picture a nice touch. In order to do this, though, you have to make the outline transparent, which will allow you to color beneath it (just as if you put the outline on a sheet of transparency paper). I'll explain this in the next few steps.
Before you do anything, adjust the brightness and contrast (or the levels) of your image until the white areas are pure white and the black lines are dark black, but not pixelly. If you aren't careful and adjust the contrast too much, you'll end up with a jagged outline, as in the picture to leftmost picture. You do not want an outline this jagged and ugly; you want it to be as smooth and crisp as possible, so be careful. You will also want to go over sketchy areas, and clean up the lines a little bit. I'm usually not patient enough to do this too often, though. Once you shrink down the image, flaws in your outline won't be as noticeable, anyway. My inking is sloppy as heck (embarassingly sloppy), but no one ever notices unless I leave it uncolored. ^_^;
Now, in order to make your freshly cleaned outline transparent, first select the entire canvas. Copy the entire outline layer, and paste it into a layer by itself as shown to the left. You will then have two copies of your outline: the background layer, and Layer 1. Delete the background layer, and create a new blank, pure white background by going to the Layers menu, then to New Background. You should have a blank background, and a separate layer with your outline on it.
Next, go to the Channels menu on the floating layers window. Click the "Load Channel as Selection" button, which is the leftmost button that looks like a little dotted circle on the bottom of the menu. What this does is select all of the white areas on a picture, so you don't have to use the magic wand. Avoid using the magic wand at all costs (unless you are experienced and know how)! It can make some really sloppy selections. I've seen too many people just use this tool to select the white areas and paint them in directly; this may seem like a good idea, but it leaves those awful white spots all around the outline. Try to avoid the magic wand tool unless you know how to properly use it. Anyway, after hitting the "Load Channel as Selection" button, all the white areas should be surrounded by dashed lines.
Make sure that Layer 1 is selected, and not the background layer, then hit delete. This will delete all white areas from the picture, leaving only the black outline. Deselect the image so that the dashed lines go away, leaving only the outline. You'll notice that the outline will be quite faded, though. Don't worry, this is very easy to correct. :)
Set Layer 1 to "Preserve Transparency" by checking the box on the Layers menu, as shown at the left. This allows you to paint on top of the existing lines without coloring over them and messing them up. Its a very handy feature. :) Select a big paintbrush and paint over the entire picture with pure black. The outline should be back to its former darkened self. :)
There, now you have a clean, transparent outline ready to be colored underneath. :)
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