I used my tree texture i made, then made white only the tree part and rest black.I used that as an alpha texture.Then i made a whole black bmp which was the base file.Then on the alpha texture i reduced the white on gray scale.
Then i put the shade object below the tree.You should add the the zbias tag in the object properties.Do not add stencilalpha tag, shade won't show then.
Also add the nocollide tag