It's true that when you play a song from notation over and over, you stop reading and play from memory. The music then loses its value for sight reading practice. At that point you may as well just focus on polishing the song - and adding it to your list of memorised pieces
One way to stop yourself memorising is to constantly read fresh material. Read it and move on. Don't give yourself a chance to memorise it.
With practice, chords become recogniseable shapes on the staff, a bit like words in language. When you see the word "guitar" for example, you see it all at once, without having to read it letter by letter. With practice, chords become recogniseable in the same way.
Until that time you can read them note by note from bottom up or top down, but try to be consistent in how you do it.
Now that I've finished my ear training lessons (
Fretsource's lessons forum in case you don't know), I've started a new set of lessons on reading standard notation from beginner level. It's a bit slow going because it involves making lots of diagram with lots cutting and pasting - but I'll start putting it up soon. I'll include graded practice material that you can download and print. Coming soon!