How to create PNG images using Photoshop and Photoshop Elements
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First create a new image with a transparent background. Then create a mask by clicking on the "Add layer mask" in the layers palette.
Next add the graphics such as text overlays and picture frames to the image layer and use the layer mask to control the transparency. In the layer mask white represents opaque, black represents fully transparent and values between white and black represent increasing transparency.
Save a copy of the image as a PSD file for future reference and then save the image as a PNG file named overlay.png.
An existing PNG image containing transparency information in the alpha channel can be edited in Photoshop by loading it into Photoshop. The layer mask containing the transparency information can be recreated by selecting Layer->Layer Mask->From Transparency.
Note: PNG images used for overlays should be saved as 24-bit color images with an 8-bit alpha channel containing transparency information. If the overlay only contains black, white and shades of gray Photoshop will save it as an 8-bit PNG file not a 24-bit file. You can prevent this by placing a colored pixel somewhere in the overlay (it can be in a full transparent area if you don't want it to appear in the prints).
First create a new image with a transparent background. Next add the graphics such as text overlays and picture frames and use the opacity slider for the layers to control opacity. To get a simple fade effect, you can also use the gradient tool. Once you’re happy with your image, save a copy as a PSD file for future reference and then save the image as a PNG file named overlay.png.