You could do one of two things on the side panel.
First, you could work back and forth, working the purl rows in colorwork and carrying both yarns together. This is probably the easiest way to work it, as long as you are comfortable purling and working backwards in color! The benefit is fewer ends, and it's quite tidy.
But, if you'd like, the sneaky way to do flat colorwork is just like you're thinking - break the yarn at the end of each knit row, slide the work back to the other end of the circular needle, and reattach the yarn to begin the next row as a knit row. The downside to that is all of the ends. I'd suggest if you do want to go that route, what you'll want to do is cast on about five extra stitches on each end of the piece and work those stitches in alternating current colors. This will sort of act like a steek - you can pick up the stitches for the top border at the edge of the patterned section, and leave the extra 'checkerboard' section on the inside of the bag. If you line the bag, it'll cover up all those loose ends and no one will ever know. :)
Every row is charted in this pattern, so after working the first row in chart, you turn your work, and you do purl the next row, because you are now on the back side of the work, but you are also working chart row 2 at the same time. You would not break any yarn off until you were done with that color for that section. I made this bag awhile bag and have the pattern so email me for more help if you like, :) Annekat
Marilyn, I'm not knitting this project and I don't have the pattern. I had the same problem as Paula and didn't see a way to respond to you're comment. I hope you see this comment.
I'm not sure if the directions for the pattern are written or by chart. But, in general, when knitting with two colors, when you purl back you are using both colors so the color should be there to pick up. If you are reading from a chart, usually row one of the pattern is a knit row and is read from right to left. The second should be a purl row and is read from left to right. I imagine this is not knit in the round. Most color work is worked flat.
I hope this helps.
Also, for this type of question I suggest posting a comment within one of the discussions or start a new discussion rather than to send a global message. If you need help in figuring out how to do that just send me a message back.
Hi Marilyn -- I see you have a question at just the same spot I am on my Sipulo bag. I received the "email notice" of your question. So I went to the link it had in the email and I didn't see your question. I am new to this site, so I am probably not doing something right. However, I am very interested in the answer you are given. If possible, could you forward those comments to me?? I would certainly appreciate it. I don't want to mess up this beautiful bag!!
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I have been knitting since I was a Sophmore in high school. I am juust recently trying two color knitting. My interest has been in complex stitch patterns so this s a new challenge.