Shanghai is a Manipulation Rummy game very mush like Carousel. Note that there is another game using the Shanghai name, Shanghai Rummy, which is a form of Contract Rummy. Understanding the rules of Carousel will help with learning this game. For the most part, only the differences are described here.
The Finangle game is very similar to this game, and they can each be thought of as a variation of the other.
Players: The game can be played by 3-5 players; 4 or 5 players make the best game.
The Deck: Use 2 52-card decks of cards, with no Jokers. The Ace is always low.
The Deal: The dealer deals each player 10 cards in batches of 3, 3, 3 and 1. The undealt cards are placed face down to form the reserve stock. In subsequent hands, deal passes to the left.
The Play: Starting with the player to the left of the dealer, and continuing clockwise, each player in turn plays cards from hand to the table. Cards played must be melded using standard Sets and Runs.
A player can create melds by providing all the necessary cards from his hand, (in which case he would have to play at least 3 cards from his hand), and/or can add cards to a meld already on the table.
As in Carousel the melds already on the table can be rearranged into new melds, to help the played get play cards in their hand into the new melds. In this game the manipulation of the existing melds is called the "Shangai". A player may freely rearrange the melds on the table so long as, upon completion of the player's turn, all cards on the table are formed in legal melds.
A player who can meld one or more cards must do so. You do not necessarily have to meld all the cards that you can, but if you are able to meld you must put down at least one card, and the turn then passes to the next player.
A player who does not hold any cards that can be successfully melded must draw the top card from the face-down stock. If this card enables him to play he must do so; if not, he draws further cards from the stock until he can play. As soon as he can play, he does so, and the turn passes to the next player.
In other words, you must meld if you are able to. If you cannot meld you draw cards one at a time from the stock until you can. As soon as you are able to you must stop drawing and meld.
As soon as a player plays (melds) his last card(s), the hand is over.
Scoring: The player who went out scores zero points. All other players score 1 point for each card left in their hand. There is no set ending to the game - you just continue until the players agree to stop and settle up for (say) a nickel a point.