1. Ewrap and knit off from the loom. (Lift the bottom loop over the top loop with the Knifty Knitter tool.) Do this 3 times.
2. On the 4th row, do not wrap. Remove the loop from peg 1 and place it on peg 2. This leaves peg 1 open and peg 2 with 2 loops. Continue to do this around the Knifty Knitter loom. When you have made it all the way around the loom. Begin knitting off on the pegs that have loops. When finished every other peg should have one loop as shown in the photo.
4. Keep repeating steps 1 through 4 until the knit reaches the desired length.
This is the hat I created using this "lacy pattern." The full pattern for the hat is (here).