Open the image you want to turn into a stencil. Using the magic wand and/or paint tool, get rid of unwanted background.
Adjust the threshold of the image. If you cannot get the entire image looking good in one step, use the lasso tool to do it in more than one step. In this particular image the head and body are done in separate steps.
Next, select the shadows in the image.
Make a new work path with a tolerance in between 0.5 and 2. To keep this simple, try something in the middle, like 1.5. Once you get the hang of it, you will know where to set your tolerance level per stencil you make.
Define custom shape. It doesn’t matter what the shape is called unless you really care.
Make a new document. Be sure the custom shape tool is ready to operate and your color is black. Select the shape you just made by either right clicking the document or using the toolbar on the top of the screen.
Click and drag on the blank document to make your stencil. You can make it as big as you want and it will come out clean.