Individuals can remember the five basic methods of characterization in literature by using the acronym STEAL, which stands for speech, thoughts, effect, actions and looks. These are the techniques commonly used by writers to reveal a character's personality and nature indirectly.
Direct characterization occurs when an author directly tells the reader something about a character's nature. Indirect characterization reveals a character's nature by showing what he does, what he thinks, what he says and how other characters react to him.
Indirect characterization leaves more to the reader's imagination, and the effect can be ambiguous. If an author tells the reader, "She was an honest girl," the reader has no reason to question the character's honesty. If, on the other hand, the author reveals a character solely through her words and actions, it's up to the reader to draw his own conclusions, as the true motivation behind an action can be uncertain, and words can be deceptive.
Sometimes an author reveals the inner thoughts of a character. This is still regarded as indirect characterization, because thoughts themselves can be ambiguous, and because a character can lie to himself. While ambiguity and uncertainty can be confusing, indirect characterization is preferable in most situations, because it involves the reader in the story at a deeper level by forcing him to draw his own conclusions.