I received a couple of requests asking me to show how to knit a two stitch I-cord on the knitting loom. The pictures below were taken when I was knitting the bracelet. I hope you find them helpful. The mini-video was shot with bad lighting but I hope it helps too (I need to get some good taping lights).
Basically, what you are doing is creating a figure 8 on two pegs, knitting over, then creating the same figure 8 and knitting over...continue until you have reached the length desired. Let's break it down with some pictures (click on all the pictures to view them larger).
Step 1: Place the slip knot on peg 1
Step 2: Grab the working yarn (or in this case the beaded elastic), and you will wrap the peg to the left. Take the working yarn to the outside of the loom and wrap the peg in a clockwise direction (the working yarn should end up towards the inside of the loom).
Step 3: Take the working yarn between peg 2 and 1 and wrap peg 1 in a counterclockwise direction.
Step 4: Working yarn should be towards the inside of the loom, take it between peg 1 and 2 and wrap peg 2 in clockwise direction.
At this point, peg 1 and 2 should have 2 loops on it.
Step 5: With your knitting tool, lift the bottommost loop off peg 1 and peg 2.
Repeat Steps 3-5 until item has reached the desired length.
Bind off: Move loop from peg 1 to peg 2. Peg 2 should have 2 loops on it. Peg 1 should be empty. Lift the bottommost loop off peg 2. Take loop off the peg and pass the remaining yarn end through it, pull gently on the end to tighten that last stitch.
The method shown here can also be done by wrapping the pegs in the opposite direction. As long as you are wrapping the pegs in a figure 8, the I-cord will come out okay.
Hope this helps you in creating the Arellis Bracelet. If you need further assistance, just let me know by dropping me a line in the comments section.