There is no simple answer for how to do hand reading. Its something, which comes with practice, and one could argue, that its the entire game of poker, at least when hands go postflop, and decisions become more complicated. But to try to answer your question, many coaches now talk about the "hand funnel", which is a way to say, that for each action ranges become more and more narrow, and they never become wider. Let me give an example:
Action: You open AsQh from CO, and BB calls.
Hand reading: At this point your opponent can have a lot of different hands, since he defended his big blind against a late position open. There is no point in listing all of them, but lets just say, he can have at least the top 50% of hands maybe even more, if for instance you min-raised. However he probably dont have the top 5-10% of hands, since he would have 3-bet those. So he can have for instance 44, A9 or KJ, but he can not have QQ, AK or 72.
Flop: AcJc4s.
Action: You can easily get called by worse, so you C-bet for 40% pot. He call.
Hand reading: For him to call your C-bet, he probably connected with the board in at least some way. So he could have AX, JX, 4X 55-TT, a club-draw and maybe some gutshots like KQ, KT or QT. But he can no longer have for instance 86 or 22, because those hands will just fold to your C-bet. He also probably dont have 44, AJ or A4, because those hands would likely have check-raised, unless he is mixing in a slowplay from time to time.
Turn: AcJc4s-2h
Action: You can still easily get called by worse, so you bet again and this time for 70% pot, He call again.
Hand reading: For him to call again and a larger bet this time, he probably need to have either a strong draw or at least top pair. So at this point we can likely narrow his range down to hands like A5-AT, clubdraws and some occational slowplay like A4 or 44. Maybe another AQ as well. We could be behind now to A2, but not to 22, since that hand likely folded on the flop.
River: AcJc4s-2h-4d
Action: The opponent now lead out for 65% pot, and the action is on us.
Hand reading: By leading out on the river, he is representing a hand stronger than ours. Its not likely, he is doing this with A5-AT or even AQ. Those hands would check and then make a decision, if we bet. But what can he have, that we lose to, and that would get to the river like this? Even though he could potentially have made trips, he cant have hands like K4 or 54 now, if he folded them on the turn, so we are not particularly worried about trips. This is the concept, that the hand range funnel gets narrower and never wider.
He could have a hand like 42, which backed into a full house, but 42o probably folded preflop, so that would only be 42 of clubs exactly. He could maybe also have A4, which is another 4 combos, and maybe J4 of hearts. So all in all we can find 6 combos, we lose to, which we think might play like this. And then there are bluffs. The most obvious draw was clubs, which missed, and knowing, that he cant win at showdown, maybe he decided to lead out trying to pretend he made trips on the river.
Action: When so few logical combos beat us, and there are busted draws, he could potentially be
bluffing with, we should not fold. There is no point in raising either though, because either he is bluffing, or he has a better hand than ours, and turning AQ into a
bluff makes no sense. So given the action and the way, the board ran out, we have an easy call.
Showdown: The opponent shows Th4c and scoops the pot with 3 of a kind.
Evaluation: On the surface it seems like, our hand reading did not work out, because the opponent showed up with a hand, we did not think, he could still have after calling us preflop, on the flop and on the turn. However when something like this happen, we need to remember, that he only had 5 outs on the flop and turn. So even when he gets paid on the river, he is still making a losing call on the turn, and therefore we should not beat ourselfes up over this result.
Instead we should make a note like "calling station" or put a "fish" tag on the opponent and look forward to get involved with him again. Its also worth nothing, that when people call very wide, they can also have more hands, that miss, and that they might turn into bluffs. So while a player like this might show us T4 offsuit, he might also show something completely weird like T2 offsuit, which he decided to turn into a bluff on the river. Or maybe he does actually lead out with A8, because he just "improved" to two pair.
So while our hand reading did not work out so well against this opponent, and we did end up losing the hand, we still made good and solid decisions on all streets and just ended up getting unlucky on the river. And therefore we should not look to change anything, and the most important job for us is to keep a cool head and not begin tilting, because a bad player got lucky against us.