In research using grounded theory, researchers start with the data and develop a theory or an interpretation that is “grounded in” those data. They do this in stages.
1. First, they identify ideas that are repeated throughout the data.
2. Then they organize these ideas into a smaller number of broader themes.
3. Finally, they write a theoretical narrative—an interpretation—of the data in terms of the themes that they have identified.

Following factors make the grounded theory relevant in Psychological research:
• Inductive research: The theory development based on actual data gathered through qualitative research despite the fact that events are processed and interpreted through the eyes of both participant and researcher.
• Good reliability and validity: The grounding of theory in data tends to make it more reflective of practical situations than speculatively derived theory (Glaser and Strauss, 1967).
• Opportunity to discover new facts: The researcher does not enter the field guided by a predefined theoretical formulation. Therefore, there is an opportunity to discover new facts that may be reflected in the data and study their causality.

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Sources:
Research Methods in the Social Sciences, Bridget Somekh and Cathy Lewin (Click for eBook)