Select the image layer and transform the layer using the 'Edit > Free Transform' function (Ctrl+T) and set the scale to 110% for both width and height and click the check mark at the top to apply the changes.
Select the overlay layer (this is important to ensure the action edits the right layer) and then right click the layer and select blending options. We'll be greeted with the blending styles prompt. Here we'll select 'stroke', setting the thickness to '2' pixels, set it to display on the 'inside' and set the fill to 'color' setting it to black. Click 'OK' or edit this overlay however you choose, add a gradient overlay or an inner shadow.
Now that we have our icon looking how we'd like, we can now add our alpha channel using our action we used earlier. With our 'Icon Action' still recording we can click on our 'Alpha Channel' action and play it, recording it into our action.
We're going to now use the 'Save for web and devices' option under the 'File' dropdown. We use this save method since it allows us to set our quality parameters as well as a specific file path to save the image to.
Set the dropdown to PNG-24 and uncheck the 'Convert to sRGB' to allow us the full color range we're looking for.
After clicking save it'll prompt us for where we'd like to save it. Save to your 'UPDATED PNGS' folder or a separate folder if you had created one. It's not recommended to save the same folder of the source PNG images as that can leave you having to start from square one again should some issue occur.
After exporting the image we can now close out of it, choosing not to save the document, and stop our action, recording our 'close' action. This will prevent photoshop from continuously opening new images and not closing them during our batch image processing.
Now that we have our actions ready we can now process all of our images.
From the 'File' dropdown we're going select 'Automate > Batch...'. From our action set we made we'll select our 'Icon Action', choose the source folder which contains our unprocessed PNG images. We don't need to set a destination since that's saved in the 'Export' part of our action.
This process can take some hours depending on how many icons you're planning to convert and of course the speed of your computer.
Even though our photoshop skills are amazing, using our 'Export' has flawed some of our exported images' filenames.
Using a folder comparing tool we can compare our PNG folders and find out what files may not be named correctly.
(I won't really go into much detail here)
The most common error is the substitution of spaces with hyphens. An example file change would be the file named
'WARLOCK_SUMMON_ VOIDLORD.png' being renamed to
Using the same method we used in step 3 we can convert our images back from our 'UPDATED PNG' folder to BLP.
Copy the BLPs out of the 'UPDATED PNG' folder to your 'BLP COMPLETE' folder for safe keeping.
You can now place the converted BLPS into your 'WoW/Interface/Icons' folder and have your custom styled icons display in-game!