"Sight-reading" used to fill me with dread (doubly so as a player who spent many years playing almost exclusively by ear). Actually, it still does make me nervous sometimes, but not as badly as it used to. Here are a couple of things (distilled from the advice of sight-reading guru Howard Richman) that you can do during your practice time that will help your sight reading immensely:
1. Learn to play with your eyes closed. The most immediate requirement of sight reading is to read the music continuously while playing at the same time. Subsequently, you can't read the music and look down at your hands at the same time. You need to "feel" the layout of the keyboard without having to look at it (similar to how blind pianists play). If you're lucky, you had a teacher who taught you to do this when you were younger and don't even have to think about it. If not (this includes me), you'll have to start learning now.
Play scales and pieces you already know with your eyes closed. Learn what each interval (3rd, 4th, etc) and chord shape feels like. For arpeggios and pieces with wider hand movement, learn to feel for the groups of 2 and 3 black keys so that you can tell where you are at any given time. Learn what longer distances feel like by "jumping" a note or chord up or down by an octave or two (initially sliding your hand across the keyboard and using the black keys to judge the distance) until you have the distances stored in muscle memory.
Finally, when you practice new music, force yourself to look up at the page and let your sense of touch guide your hands.
2. Learn to recognize patterns and read ahead. The next step is to read "fluently", which is a technique in itself, especially if you play primarily by ear. Choose some music that is at or below your playing level for playing hands separate. If you've been playing for a couple years, the four part Bach Chorales and/or SATB Hymnals are excellent material because they have 2 notes max per clef. Start going through them using the following method.
- Play through a chorale/hymn with each hand separately (left and right for bass and treble clefs respectively), only playing the downbeats and ignoring any notes that fall off of the beat. Play as slowly as you need to in order to find each next grouping without looking. In the chorales, you may have two notes that are two far apart for the left hand to play. In this situation, I play the lower note. Don't go back a repeat any pieces until you've gone through the entire book. (This goes for all steps.)
- Once you can feel your way around a simplified chorale or hymn, continue playing through them and add a metronome at slow tempo. Gradually increase the tempo once a week or when things become too easy. (I added 2 bpm per week, but that's pretty conservative.) If you're missing too many notes, you need to slow down. However, if you do make a mistake, it's more important to keep your place and keep going. The steady tempo forces you to look ahead to keep up. You should eventually acquire the skill of looking at the next note as you move to play the current one. You'll also get an idea of how often and quickly you can "sneak" a glance down at your hands if you see a particularly confusing leap coming up.
- Keep going with the above, and also start going through some of the chorales very slowly, still hands separate, but this time playing all the notes and not just the downbeats.
- When the above becomes easy at faster tempo, start going through pieces without the metronome, very slowly hands together, only the downbeats again. Go so slowly that it's impossible for you to make a mistake, and make sure that you're feeling for the next notes with both hands at the same time rather than one before the other.
- Use the same process to build up hands together: adding metronome, then adding all of the notes once downbeats-only become simple, and gradually speeding up again.
- You're done when you can sight-read through chorales at moderate to fast tempo with all notes included.
Keep in mind that it's best to sight-read things that are at or below your current level of technique. If you're trying to sight read your way through a Beethoven Sonata or one of Liszt's Hungarian Rhapsodies and it's going badly, it might not have anything to do with your sight reading ability. The piece just might be beyond your current level for one or both hands. Keep logging those practice hours and come back to it another time. In a public situation, do not be afraid to say that a piece is just too advanced or complex for you to sight read. (Unless you have a forgiving audience, it's better than trying to slog through something that's clearly beyond your current capabilities.)
Some things to remember: the number of situations where you will be legitimately reading a piece at sight for the first time with no preparation and no room for mistakes are probably too few to count, unless you work as an accompanist and/or session player (and therefore are probably not the type of player who needs these tips in the first place). You will usually have an opportunity to look a piece over and determine any difficult spots in advance, and decide whether you should attempt to play them as is or substitute something easier. If you make a minor mistake here and there, the world keeps turning and your audience, if there is one, probably won't notice anyway.
After working on these things, I'm happy to say that I was able to play in a written-music based ensemble and play through things I'd never seen before without messing up too badly or having a complete breakdown.
For a more detailed breakdown of these techniques, I highly recommend Howard Richman's Super Sight-Reading Secrets. It's the best book on the subject that I've ever read. http://www.soundfeelings.com/products/music_instruction/sight-reading.htm