Fair Isle is a traditional knitting technique used to create patterns with multiple colours. It is named after Fair Isle, a tiny island in the north of Scotland, that forms part of the Shetland islands. Fair Isle knitting gained a considerable popularity when the Prince of Wales (later to become Edward VIII) wore Fair Isle tank tops in public in 1921. Traditional Fair Isle patterns have a limited palette of five or so colours, use only two colours per row, are worked in the round, and limit the length of a run of any particular colour- WIKIPEDIA
Good news, we can also knit fair isle pattern on knitting loom!!
Below are pictures of my friend's fair isle projects
a bag done by Puan Haryanty
Puan Khatijah's fair isle bag
A bag-to-be, my WIP
How to change colour on loom: