How to teach reading

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DD#1 knew her alphabet and was writing phonetically (ie, really dreadful spelling - "I love you" became "I luf joo") before she started school. She had sight words from school on little flash cards. Simple words like 'the', 'of', 'big' etc. I read to her from simple books every day and whenever we hit one of her sight words I'd ask her what it was.

Sounds good? Hell no. She REFUSED point blank to cooperate, she REFUSED to read her sight words off cards OR books OR when we found them on common objects ("Big red" on the tomato sauce) and tried to bribe her to get her to read them. She argued with me no end when I pointed to words in books as I read them out, because I was apparently reading them wrong, or they were spelt wrong, or she didn't agree with what I said. Trying to teach her to read was a truly horrible experience and the daily savage arguments almost brought me to tears. I was supposed to do all this stuff with her after school but with such an argumentative child it simply wasn't possible - way to make you feel like a failure.

She ended up just deciding on her own she wanted to read just before she turned 6. She went from being totally illiterate to a 8yo reading level within a year, and is currently 9 with a 15yo reading level. She changed schools last year and because she is such a good reader the teachers assumed she had been reading since she was 3 and gave me a look of total disbelief when we said she'd only learnt to read at the end of her first year at school.

DD#2 on the other hand is just absorbing stuff like a sponge, she knows most of her alphabet already and can count, and she likes being read to. She can remember what was in her books so she'll sit there 'reading' them out loud by rote, running her finger along the words. She's never argued with me about anything other than bedtime or the number of biscuits she can have while DD#1 argues with me about EVERYTHING (except bedtime and the number of biscuits she can have). I'm fully expecting DD#2 to be reading sometime when she's 3, maybe earlier but I'd be surprised if she does that early.

Edit: I should mention we have around 400 children's books in this house (plus adult books too), with a range from 1-15yo reading level, sorted on the bookshelf with the baby ones at the bottom and the teenage ones at 9yo height, so our toddler just helps herself to books and makes us read them to her