7) Create two new layers and name the one Highlights and the other Shadows.
Select the highlights layer, pick the “Rectangle Marque Tool” (M) and make sure that the option checked is “Add to selection 
Then select four vertical rectangles and fill them with a dark grey. After you have done this you should have something like this

9) Without deselecting select the shadows layer and go to “Select” -> “Inverse” and fill the selection with the same color and finally deselect (“Select” -> “Deselect”)
10) You should now have the shadows layer selected.
Go to “Filter” -> “Blur” -> “Gaussian Blur” and use a radius of 15.

You may need to play around with the settings depending on the size of your original file. For reference, the image that I used for this tutorial was 1000*600 pixels.
11) Go to “Filter” -> “Distort” -> “Shear” and use the settings we last used for the flag
12) Select the highlights layer and repeat steps 10 and 11
13) Click on the flag layer while having Ctrl pressed. Invert the selection. Now you should have a selection that includes everything but the flag. First select the Shadows layer and hit Del and then the Highlights layer and hit Del again
14) Set the blending mode of the Highlights layer to “Screen” and the Opacity at 60%. Finally set the Opacity of the shadows layer to 40% (leave the blending mode to normal). We are all done, you should now have your waving flag on a transparent background ready to be used for your graphic or web design projects.
This is my final result

Technorati Tags: Photoshop, tutorial, tutorials, flag, waving, effect, design

nice tutorials, thanks for sharing your knoeledge in photoshop
thanks u very much i shall try this tutorial
Thankyou! that is so fun.. cept I have a problem that’s keeping me from doing it, that maybe you could help with..
The part were you select the objects, and the “add to selection” button.. okay.. umm.. A couple of months ago, that tool bar dissapered.. and I have been looking for it ever since… do you know how I get that back?
THANKYOU!!!
-Jenn
not bad…
nice
this is gorgeous and ever so patriotic, i will forever thank you.
I’ve tried out the tutorial – I’ve achieved a similar but better effect!
Thanks mate!
Thanks for the nice comments
thanks for the wonderful tutorial. photoshop is very interesting… it makes a photo to a real image view
That was a nice tutorial. A new lesson that i learnt…
this thing is narnley like bob marley
such a nice and easy tut
nice tut…………hey jenny…..the tool box is in window option on top…….
thanx for this tutorial it enhanced my interest
thanxs this is a new type and very creative tutorial
nice and creative….
really nice tutorial. thnx.
Really very fantastic and great go ahead
nice try but the shadows need a 3d effect at least
Dear PSLOVER:
Thanks for the awesome photoshop tutorials. I will especially use the wavy USA flag technique in my future computer drawings.
Thanks
Sara
Very good totorial.. I really enjoyed..
Nice way to wave a Flag