I actually folded mine back like you were doing the first time I did it. In a way I kind of liked it like that because you still sat somewhat under the top but it let the light and air in. I was thinking I may be doing it wrong because when I looked at it closer, it appeared to be kind of pinching the material in that very first fold section that the arrow is pointing to.
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We have to stop on my explanation for a sec. I have to admit right now, that I thought I was doing it wrong like I said above, but I went to find the video I found of them folding it like in the above pic with the arrow, and I ended up watching the one that was in the Amazon ad for my top. They fold it back like I did the first time, seen in this pic.
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So I guess there is no wrong way of doing it.
As far as preventing flapping, I would say I didn't know it was flapping. LOL When I folded it in half, like the second pic, all I noticed was it kind of was pushed down a bit. I never got on a freeway with it though. Top speed was about 55 for about 2 miles and it just pushed it down.
In all honesty, I haven't driven with it folded like the pic with the arrow. I was just experimenting, trying to see how I thought I saw it folded in a video because of seeing being pinched.
Here is either the Amazon ad, click on the video where it shows they are on the beach that is in the ad. It shows them folding it back.
https://www.amazon.com/gp/product/B004P23X6W/?tag=wranglerorg-20
EDIT to ad..... I found a video of them folding it like in the pic with the arrow, but it is on a JK, they do explain that on some older models they have to plastic tabs you have to pull out of the channel. This is still not the video I saw the first time. I can't seem to find it now. LOL