Open a new document in Photoshop and choose a size for your picture.
Fill the background with some dark color (use Bucket tool). We need some contrast since the candy cane is white. I’ll go with dark gray (#565656).
Create a new layer (Layer / New / Layer…) and name it Candy cane. Pick the Pen tool and set it like this:
You all know how the candy cane looks like so roughly draw one. In the end make sure you’ve closed the path. The first and the last anchor points are the same.
Now, smooth the edges. Pick the Convert point tool, go over every anchor point and twist and turn until you get rounded shape.
When you’re finally satisfied with the shape, pick lighter shade of gray for foreground. Right click on a selection, choose Fill path…, make sure Foreground color is selected in the next window and click ok.
After that, right click again on a selection and choose Delete path.
Change foreground color to dark red (#941414). Create a new layer and name it Red stripes. Now hold alt and place your cursor on the border between layers Candy cane and Red stripes until it turns into two circles that intersect each other and click.
That will make so called clipping group. That means whatever we draw it’ll be on the cane only, so no need to worry about crossing over the edges.
Select the Red stripes layer (if it’s not selected already), pick Brush Tool (with hardness on 100%) and start painting stripes wherever you want. The stripes will look better if you don’t paint them looking like a school fence. That means try to make them a little less straight. On ends, paint stripes a little short because it’ll give it more of a 3D look.
Create a new layer and name it Thin red stripes. Make a clipping group for this layer also. Choose a lighter red for the foreground color, pick a smaller brush and paint some more stripes.
Now we’ll create a shadow. Create a new layer, name it Shadow and create a clipping group. Pick a bigger, softer brush (around 20px) and set the foreground color to a lighter gray (I’m using #6f6e6e). Again, no fear to go over the edge because of a clipping group, so feel free to paint with the brush half on the candy cain and half outside. Start from the top and go down the left side to the end of the shorter part. The second part is from the bottom of the arch and down the left side all the way down. Try to go from outside in when starting to paint a shadow, because it’ll look smoother.
Set the blending mode of Shadow layer on Multiply.
Create a new layer, name it Primary Highlight and create a clipping group. Set the foreground color to white. Pick a hard, round brush around 20px and paint through the middle of the cane, ends and near the edge where the shadow was applied.
Go to Filter / Blur / Gaussian Blur… and set the radius on 2px. Change the blending mode of Primary Highlight on Overlay and decrease opacity so it looks good.
Create a new layer, name it Secondary Highlight and create a clipping group. Pick a smaller hard, round brush (around 10px) and paint some more highlights. Apply Gaussian blur with a slightly bigger radius (I used 3.3px). Decrease the opacity as you see fit.
In the end, we’ll create a shadow that cane drops. Select Candy cane layer (it should be highlighted blue), right click on it and choose Blending options… Apply Drop shadow and Inner glow with these settings.
I’ve chosen a sharp shadow, but it’s up to you to set these values as you see what’s best for your picture.