1: Open up your image :> File Open
2: Adjust your levels :> Image Adjustments, making the darks darker : left arrow head to the right and lights lighter, right arrow to the left. Click OK. (You can with the eraser tool rub out any confusing background or use the magic wand tool and cut it out ctrl>x.)
3: Go to Image > Adjustments down to Threshold. Scroll the slider around to find the best result
4: Go to Select > Colour Range. With the eye dropper tool click in the black area. Ok
5: Now go to Edit> Fill, Use White, click OK
6: Get your Brush tool and go up to the Tool Preset Picker. (Top left under File, brush with black arrow) Scroll down to Spray Can and set your colour to black. Flow 50%
7: Now for the fun bit, you can imagine yourself on your own wall with your own custom stencil, swoosh away with the spray can. Leave some areas around the edges a bit paler
If you overdo it open the History in the Layers menu. Open palette wider to see it, and scroll to the bottom and start deleting by clicking on the previous action until you arrive at where you started or before. This is always useful for undoing errors
Go to >Select >Reselect to enable the selection again for spraying
8: Go to Select and Deselect to see your stencil
You may want to add some funky stencil type. Click the type tool select a type and size--you can always modify this by double clicking on the T in the layers
To give the type a stenciled effect go to :> Select Load Selection> click ok. Get your brush and click in the type, you'll see a message about Rasterinzing the type , click ok. Fill with white as before. Spray with paint and deselect. You can move it about with the move tool or rotate it. Go >Edit> Transform> Rotate

Using your stencils
A: If you want to you can actually use the stencils as stencils. Use the image as is at no:3 and make some joining lines to keep the image together if needed. Its best to do largish simple images so its easy to cut out
Print it out--you can put several on a page. Over this sellotape some thin acetate and on a cutting mat with a scalpel cut around the white shapes. Tape on your chosen paper, tags, journal etc and spray with a paint spray
B: Print out the reversed stencilled images with a laser printer in black and white, or print out and have them copied at a copy shop.
I found cellulose thinners (used for thinning car paint) excellent for transferring the images, wherever you want them. I have also tried acetone and other things which dosn't work quite so well. Place image on paper card etc with the image face down and with a cotton bud--not too wet, rub over the back of the image. Then use (I use the handle of my scalpel )or something smooth and hard gently rub the image and it should transfer nicely.
C: Alternatively transfer your stencil image with the inkjet/ gel transfer method, also reversing the image
D: Just print out and incorporate into your work

Other things to do
You could add a background colour or a wall texture
1: Double click on Background in the Layers palette
2: Add a New Layer ( Click black arrow at top of layers Palette)
3: Fill it with a colour. Set Blending Mode to Multiply or try the others (just under Layers)
4: Go> Filter>Texture >Texturizer> Brick. Play around with the settings
Digital Stencils
Very similar to the digital
rubber stamp tutorial  method, but just as simple and satisfying. Another way to embellish your tags, journals, T shirts or even dare to say walls. This is the basic method for Faux stencils, but you can go on experimenting and discover lots of variations. Am using Photoshop 7 Gillian Allen 1106