Well, first of all, his hat is really jaggedy. Second, either you spent a lot of time on them, or the clouds are a product of the brush tool, which doesn't really count as pixel art. You can only have 32 colours anyway.

About the shading, just think of what shape you want him to be. He looks rather cylindrical, so you should make the left side darker than the right, and make the bottom darker than the top, putting brighter highlights closer to the candle, for example on the hat, and duller ones near the bottom, on his legs. The same should go for his face.

One thing you should note is that when shading, you should add colours to it instead of just doing it from white to black. Areas facing the light should have sort of an orange-yellow tinge (just a tinge, though, not a pure colour, judging from your current style) from the flames, and the shadows should fade into blue if you want a cool darkness, or brown if you want a different feel. Another thing you could do since it's a dim light source is make the farthest areas (like his right arm and leg, in the corner of the picture) sort of fade into the black background to make the darkness a part of the scene instead of just a backdrop to your picture.

If you're still having trouble with the lighting, you could go look up a reference picture for the lighting and base it off that, or I could do an edit for you.

and this topic is on wrong forum. This should be posted to W.I.P - section or Weekly Challenge topic?