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Wool can be used for tatting but the yarn quality is vital. The wool must be very smooth in its texture; avoid any wool that shows signs of fluffiness, knotting, grabbing, etc. If you're not sure, test it first by sliding a piece up and down the shuttle to see how easily (or not) it glides when pushed. A wool that slides easily will be suitable for the tatting project. Also check the instructions for your given project and see the note in "Tips" below.
Be careful when choosing wool as your tatting thread of choice.