MAKING IT FROM SCRATCH!
First off create a 128 by 128 canvas.
Add transparency, if not already done, and cut the background.
Begin with the original sprite from the game.
Create outline and add base color while looking at a reference sprite.
Add shading, lines and details.
MAKING IT BY USING A BASE!
First, take your base you'll use, I used Chris.
Open the game's sprite.
Color the shades accordingly from colors from the game sprite to the witness sprite. Tip:Turn tolerance to zero.
If the sprite does not have a neck, add a neck from another sprite, or free-draw it, I used Hobo Nick's neck.
Remove extra pixels and and recolor hair if hair is on clothes.(Pixels in red will be removed.)
If not done so finish recoloring clothes.
Change the head and fill with the base color.
Remove any extra pixels if necessary, and shade accordingly, remember details, especially for hats and hair, do not need to be perfect, just close enough so it cannot be told apart for the original.
The finished result.