"Ghost Effect" (Tutorial)

Make this icon: Image hosted by Photobucket.com. This is for PS 7, but can be translated to other versions.

First, open the image (Copy and Paste into a transparent layer): Image hosted by Photobucket.com
Then, select the desired character (or image) and crop it to 100 x 100 pixels: Image hosted by Photobucket.com
Then, erase (use the Eraser Tool) whatever is not the character (i.e., the background). If erasing seems too tedious, you can use the Magic Wand tool and select and delete the undesired space. But be warned, that method may erase more than you want. Make sure the background is now transparent:Image hosted by Photobucket.com
Now, open up your real background. It doesn’t matter if you Copy and Paste or not: Image hosted by Photobucket.com
Crop the desired space to 100 x 100 pixels: Image hosted by Photobucket.com
In this case, the background is too dark. Go to Layer > Duplicate Layer and set Blend Mode to Screen: Image hosted by Photobucket.com
Take the other image and Select All (Ctrl + A) and Copy and Paste into the background image. A new layer for it should come up: Image hosted by Photobucket.com
Now, to achieve to ghost-effect, lower the top layer’s (the one with the character in it) transparency. I lowered this one to 55%: Image hosted by Photobucket.com
For a more aesthetic look, I added the words “Phantasm” in Scriptina font at 12 pt: Image hosted by Photobucket.com
But, this would look better if I go to Layer > Layer Style > Outer Glow: Image hosted by Photobucket.com
And now, you’re done. :D

And, so you can see what made my “Outer Glow” look the way it did: Image hosted by Photobucket.com
Here’s a tip for making the “Ghost Effect” work best: Have a background that looks realistic for the “ghost’s” size. It will look much better if you keep things in perspective.

And yes, this character is Setsuko from the anime film, “Grave of the Fireflies.” If you are a fan of Studio Gibli, are a WW2 buff, or generally like to cry, do pick it up. It’s an indescribably profound film.