Water is hard to draw. If you look at this image http://ykonline.yksd.com/distanceedcourses/Courses/PhysicalScience/Lessons/FirstQuarter/Chapter02/Lesson01/Images/LakeWaves.jpg

try and see that the bright parts of the water (highlights) connect, with holes in the middle of varying sizes(where the dark part of the water is. Then, above and below the 'groups' of highlights there is mostly dark water with some highlights scattered. Try and look at more pictures of water to get a hang of the shape of the water. That is very important to make it look like water.

The water in your ref doesn't get that dark at the bottom. It looks like you are trying to view the water from the side, kind of like a platformer. If you are, maybe put the texture at the top only and put some seacreatures in the sea. If you are trying to make it look like water from above, make the dark move up in a gradiet like in this picture: http://upload.wikimedia.org/wikipedia/en/b/bc/Pleasant_lake_water.JPG
It starts dark at the bottom and then gets lighter gradually.

Don't make all the clouds the same shape, and they don't need to be attatched and at the top. I would space them out. Let me show you what I mean:

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I know I just threw a lot at you; but take it one step at a time and you should be fine. We'll be here for you! :)

I have a few quick tips. For the water above (which is a HUGE improvement btw), you may be using too many hues. Less colors is easier.

I would suggest 3 colors for your water. The highlight you have right now is good, and I like the color inside your highlights too. You could use the inside color for all the water, and then just add the highlights, and maybe a darker shadow.

For the cloud, I used a bigger pencil tool. I dotted the pencil in a concentrated area so it would look like a fluffy cloud, then added more circles to the edge of the cloud. You can use varying sizes for the brush.

I think the reason the water looks so good in the ref is the repetition of shapes. Patterns are very important in pixel art. I had a classmate do an acrylic painting with a lake, at first it looked really ugly, but she repeated the highlights and even made them varying colors and it ended up looking just like the lake! Hopefully that can serve as some inspiration for you.

Nice! I would make some of the lines less jagged- you have random pixels poking out at some points, try to make it more smooth.

Also, if you are going to put this on your website, I'm going to ask that you don't use the one I edited. You should try to make your own clouds :)

I like the sea a lot, but I feel you need to work on your clouds more; just look at reference images. Clouds are generally bottom-heavy, and have peculiar shapes.

Mmm it is better, but since you are going with this very definitive style, it may help the cloud if you have parts of them blending into the sky. Since at the moment they seem of two distinct styles.

  Well I am liking my realistic approach as it shows more skill than a cartoonist simple one. But how would I continue the ocean after that point? Wouldn't it be obvious that it's a loop? When it is looped horizontally the people don't notice the cut as much since my website takes up most of the space.

Thanks!