Step 1
Find (or make) the skin you are going to shade
Wether it be your own skin, your friend's skin, or your creepy neighbor's anything works!
For this tutorial I will be using Pixel_Frenzy's Cartoon Pupmkin-Head Steve
Which could be downloaded here:
http://www.planetminecraft.com/skin/cartoon-pupmkin-head-steve

Step 2
For this tutorial we will use be using a 1.8 compatible shading template, but if you are using a 1.7.10 skin you will have to use a 1.7.10 template
You don't have to use the shading template I will be using for this tutorial, if you want to use another one just look one up that fits you or your skin best
I will be using PortableRogue's Shaded Template[1.8][With Hat]
Which could be downloaded here:
www.planetminecraft.com/skin/shaded-template18with-hat

Step 3
Open your skin and your shading template in your photo editing software, for this tutorial I will be using Adobe Photoshop CS6


This is the shading template on top of the skin
We would like to lower the opacity of the shading template

Here is the shading template at 70% opacity
We would like to cut out the parts of the shading template where we do not see the actual skin.

I have selected the Rectangular Marquee Tool


I have part of the shaded template where skin does not show selected, now press the delete key
Do this with the other parts of the shading template where skin is not able to be seen

The only parts of the shading template are now on the skin
We will begin to edit the opacity and effect on the shading template
First, change the type of overlay the shading template sets to Linear Light
Your skin should now look like this: 

Next, you could edit the opacity of the shading template to how you want it, currently I have it set to 70% and I find it works quite good