I am going to use a image to create caramel effect. I found one good image at stock.xchange for this tutorial. Open it and go to Image > Image Size and change width to 1000 px. After that copy it to our document as new layer (i named this layer “Caramel effect”).
Create a new layer called “Text” and select the Horizontal Type Tool (T) with these settings: Arial, Black, 230 px, Smooth. Write your text on the middle of canvas, for example “Photoshop” in whatever color you want.
We are now going to create caramel text effect. First set up Fill to 0% for this text layer.
Go to Layer > Layer Style and apply the following layer styles to the text layer:
Now I would like to increase contrast on the text. For this duplicate text layer (Ctrl+J) and then create new layer named “Filter”. Merge both layers (new text layer and “Filter” layer) to get all text effects in one layer.
After that apply Filter > Blur > Gaussian Blur with next presets: