The arm appears to be dislocated or broken. The arms don't hang down from the shoulders- they stick out of the torso, and that upper part of the arm is actually part of the arm. In other words, it's impossible for the arm to be hanging down and sticking outward like that at the same time.

Here's a high-res drawing of a torso in a similar pose to explain it:

The round shapes are where the arms and legs grow out of. Even when the shoulders are broader than this, the general shape/idea is the same, that part of the body is just wider as a whole.
You should probably study anatomy a bit more in-depth (in particular, where the different joints are and how they can move) if you want to be able to draw humans larger than 16x16, but hopefully this simplified drawing will help you with this particular piece.

The colours on the jacket all blend into each other, it's hard to tell there even is any shading or highlighting. Ditto for the scarf, shirt, and skin. The head also has a lot of colours for how little value range it has, but that might be fine if it's meant to be a very dull material.

Better, but the shading on the arm/shoulder still gives the impression that the arm snakes out of the body and bends partway through the upper arm.

You also seem to have made the arms much longer? If you're aiming for more realistic proportions, you should keep the arms as they were, and raise the crotch instead.

There is still very little internal contrast in the jacket and scarf. Compare to the trousers - much more contrast there, so they read much more clearly.

Here's an edit using your original one as a base, mostly focusing on colours:

I also fixed the shoulder. On the right is additional anatomy tweaks, in case you want more realistic proportions on the body.
I increased the contrast in the shirt, jacket, and scarf. I got rid of the highlights on the jacket, because there just isn't really any need or room for them. I re-shaded the jacket a little closer to your newer version, so that the light source is consistent with the trousers.
I also changed the scarf to give it more form. Notice that I avoided making a bunch of little highlights and instead focused on the overall form of the scarf. I also dithered the bottom, but this was just to make it a bit more visually interesting, it doesn't correspond to light/shadow.

I also hue-shifted all the shadows towards purple a bit. This just makes the colours look a bit less dull. Shadows are only ever a darker version of the base colour if the lighting is completely neutral, which is almost never the case. Shadows tend to take on a bit of the hue of the ambient light, and highlights tend to take on some of the hue of the light source.

It's experience. I explained the thoughts behind all this in the last paragraph of my last post. I shifted the shadows towards purple and the highlights towards yellow.

I chose these shifts because light is often warm and yellowish (sunlight, lamps, fire), and I chose purple both because it's the opposite of yellow. I'm applying basic colour theory - colours opposite each other on the colour wheel make a pleasant contrast. There's a bit more to it that has to do with shadows outside IRL often being cool (due to the sky) but I don't consciously think about it.

If you want to learn more about light and how it affects colour, this is a good tutorial.

I used yellow only on the helmet because it's the only area that had a distinct highlight. Elsewhere, there are no highlights, and no room to put them, and no need for them. I didn't shift the base colours in my edit because it felt unnecessary, and because it's usually important to maintain colour identity in sprites.

Less talk, more work! 

At least to me, the perspective on the buildings is off. The buildings looks like the camera is pointed upwards, but the character suggests a more straight-on view. Furthermore, you're using far too many colors, especially on the lights. Instead of doing what you're currently doing, try using one or two colors for lighting.

That is a very bad idea. Pixel art is all about precision and a limited color set, something that using things like the brush, smudge, or, in your case, glow tool does not do. Notice how using these tools have added at least 10 extra colors to your art? This is not a good way to go at all.

If I were doing this piece, I would add glow using a flat color from the glowing object combined with dithering at the edges. It won't be quite as smooth as what you're doing, but it will look much nicer.

Rough gradient is not suitable for neon effect

Here is a little edit about a background (leaving the lights now)