Screen/Multiply Shading - Photoshop
My shading technique, without palettes.

Choose a base, copy it and paste it into Photoshop.
Here, I used one from Fainelloth Dolls.
You will also have to choose a color.
Create a new layer.
Using the Pencil tool (Diameter 1 px), draw the outline.

Do not forget to clean up the outline.

Create a new layer, below the outline layer.
Select it using the Magic Wand and fill it.
Set the outline layer blending mode to Multiply, but do not change the Opacity yet.

Create a new layer, right above the filling. Blending mode: Multiply.
On the filling layer, select the dress.
Using the Brush Tool (Diameter 1, Hardness 100%), draw the shadows.
(The dress areais still selected.)
Pick the Blur tool and blur some areas.
(Now, I prefer Smudge.)
(The dress is still selected.)
You can create more shadow layers if you wish.
(The dress is still selected.)
To add the highlights, you have to create a new layer and set its blending mode to Screen. Everything else is the same as for shadows.
(The dress is still selected.)
Now you can play around with the Opacity of all the Multiply/Screen layers.
(The dress is still selected.)
Create a new layer, above all the other layers. Blending mode: Color.
Fill the dress.
Change its Opacity to obtain better results.
Add the details.
You´re done!
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