[photopress:spiralstripes15.JPG,full,pp_image] Montse Stanley discusses this technique in The Handknitter's Handbook, referring to it as Helix stripes. Her directions don't quite make sense to me however, so here is what I worked out. In the process of making this pictorial guide for you teddy got a new hat, so everyone's happy.
This technique can be used to knit single row stripes in the round, or as I did on my stripy jumper, it can be used for wider stripes. The important thing is that you need 1 ball of yarn for each different stripe in the sequence, not each different colour. So for my jumper I needed 1 ball of dark green and 2 of light green to make a stripe sequence that was 1 row of dark green and 2 rows of light green. For teddy's hat which has a sequence of four single row stripes, I used 1 ball of each of 4 colours.
You then need to divide your total number of sts per round into roughly equal sections. The number of sections should be 1 less than your total number of stripes in the sequence. So for my stripy jumper I divided it into 2 sections (the front and back). In the example below I've got 4 colours in each sequence so I divided the number of stitches into 3. One section on each needle. In this example I started the stripe sequence after a few rounds in a single colour, but if you want to start the stripes at the very begininning you can cast on each section in a different colour.
At the beginning of the first striped round, join your first yarn in the sequence, without twisting the new yarn with the old, and knit across the first section of sts.
At the start of the next section join the next yarn in the sequence and knit across this section.
Continue in this way until you have completed the round, working each section of stitches in a different yarn.
Pick up the yarn you were originally working with (in this case the pink) and knit across the first section of sts.
At the end of the first section drop this yarn and pick up the next yarn (in this case the red) and use it to work the next section of sts.
Continue every round in this way, changing yarns at the end of each section as you come to the next yarn, remembering not to twist the yarns in any way.
To switch back to knitting in only the main colour, work a complete sequence of stripes, so that the yarn you pick up to work the 1st section of the next round is positioned to be the main colour.
Work the entire round in this colour.
You could, theoretically do as many stripes in each repeat as you wanted to - but bear in mind a few points.
Firstly that for a sequence with many stripes you would need an unwieldly number of balls of yarn. That in itself isn't am insurmountable problem, however because of the spiralling, every row you add to the sequence will make the spiralling more obvious. You could, I suppose, make a design feature out of that. The other problem with many row stripe sequences is the position of the yarn changes. In my jumper I only had 2 of these changes, positioned at the sides. There was a noticeable difference in the tension in the sts around these changes. In my jumper this doesn't bother me, because it is positioned at the sides, and looks a bit like seams. This is a lot less noticeable on teddy's hat, possibly because I knew it might be a problem and was aware of trying to avoid it. There is, however, a noticeable jog when each new yarn is introduced in the first round.
This could be made less noticeable by working the stripes immediately after a section in a different stitch pattern, after a ribbed cuff for example.
If you are working a stripe sequence in which most of your stripes are of 3 or more rows, the jogless join would be a better choice.
Please let me know if any of that wasn't clear enough.