Step 1: Choose a background
For best results, we will use a dark background. The background should have some color and colors that are too dark (such as pure black) should be avoided. We will use dark purple (#120612) as the background color.
You'll notice that the effect achieved in this tutorial can be achieved in many different ways - this is just the easiest way I've found.
Step 2: Set style
We're going to set up a less traditional style type ~ this will allow us to get a special layering.
Using the Type Tool, enter any effect you want to apply, but only one letter per layer. What this means is: you need to enter a letter to create a text layer; then create a new text layer for the next letter. When you're done, each of your letters will be a separate layer. Your image might look something like this (note: the text below is in the Century Gothic font).
Instead of wasting time arranging your letters perfectly, use this quick step: Select the Move tool. Create a selection around the first letter (Ctrl + click on the layer thumbnail on the layers palette). Next, select all text layers (click on the bottom text layer's name, hold down shift, and click on the top text layer). Now, click "Align Bottom" in the options bar - the icon will look like this.
Deselect all selections (Ctrl + D) and now start moving the individual letters so that they overlap slightly.
Step 3: Add Gradient
Create a new layer above the text layer. Use the Gradient Tool: Fill the work area with a white, transparent gradient to make the gradient or overlapping text less opaque, but still appear washed out. The gradient should move from top to bottom, with the top being the least opaque (hold the shift key to make a perfectly straight gradient).
Step 4: Cut out the letters
Imagine we are making cookie shapes. In a sense, the gradient is our dough and the letters will be our cookie cutters. These individual letter layers created earlier are the tools we use to create the gradient shapes.
Let's implement it step by step and see if it makes more sense. Create a selection on your first letter layer (Ctrl + click on the layer thumbnail in the layers palette). Now, select the gradient layer ("select" means click on the layer - not select the layer's contents. We want to keep the first letter selected). Copy (Ctrl + C) and paste so that you have created a gradient on the first letter shape. If you disabled all layers except this new layer you created and the background, you'd now have this:
