[magnesium12]

this is a very basic example of how the alpha channel decides what will be tarnsparent and what won't be

initial image
[img]http://mohaa.cact-sd.org/aasigs/mag12testhud.jpg[/img]


the alpha channel (black=transparent, white=not transparent, grays=something in between)
[img]http://mohaa.cact-sd.org/aasigs/mag12testalpha1.jpg[/img]


end result in game
[img]http://mohaa.cact-sd.org/aasigs/mag12testhudresult.jpg[/img]


now follow r3mix's explanation and experiment till you get it right.