wet sanding lightly between coats is preferred...600 grit or FINER...lots of water (i use an open end garden hose, minimum flow but constant, in one hand and sand with the other hand)...use a sanding block where-ever possible...use extreme care at ridges and panel edges to avoid cutting thru (watch sanding ''runoff'' on the sandpaper for any evidence of color coat removal)...blow-off ALL water and allow to stand for several hours to be sure no water is hiding to jump out into the next spray coat...use masking tape that will not permanently ''freeze'' on the car when wetted, pull tape and remask if unsure.
minimum three coats, maximum five...depends on how much you have to sand off each stage (coat) to level it and how ''wet'' each stage is applied.. .don't pile on too much clear --too much paint build will cause ''cracking'' when the paint reaches ''full'' cure, which may take up to a month, depending primarily on type of paint used, but painter technique and weather also affect
What kind of clear coat are you using? Urethane or Lacquer?
Each on has it's own different technique. On a urethane you want to get at least two coats on before you wet sand it, and then either just buff it out or come back over it with maybe two more coats. On a lot of the urethane clear coats, you can just put on two or three coats, then wet sand it and buff it out and you are done. If you are wetsanding every coat you are going to be clearcoating for like a week straight on some of the urethanes because they dry so slow.