Step 1

Start with an appropriate font. Here I used Tag Extreme. Download
it here

Right click on the name on the layers pallett and select “rasterize
type”

Step 2

Create a new custom blend similar to this.

Step 3

Ctrl/Cmd click on the layer to select it.

With the gradient tool set to linear draw the blend by dragging the gradient
tool from top to bottom.

Step 4

Don’t deselect.

Create a new layer

Edit>stroke

Add a 2 pixel gray stroke to the “outside”

Step 5

Filters>blur>gaussian blur

Add a .08 gassian blur to the new layer with the outline on it.

Step 6

Merge the outline area with the graffiti layer by clicking Ctrl/Cmd+E
or select “merge down”

Step 7

Select the layer again. Cmd/Ctrl+Click on the layer thumbnail.

Add another stroke, this time make it black and put it right on the graffiti
layer

Step 8

Looking good! Now for the shadow.
Duplicate the layer by dragging it to the new layer icon on the layers
pallette.

Select the new layer and Fill with black.

?

Step 9

Drag the black layer behind the graffiti layer and move down and to the
left a little bit.

Step 10

Here I added a background and changed the layer blending mode of the
graffiti to Hard light. See how it blends nicely to the background like
it was painted on.

Download the PSD