Mike: I sand to 600 grit, then I etch the blade with circuit board etching solution from Radio Shack. The etching is FASSSST... only dip it for about 10 seconds, then neutralize with an ammonia based cleaner, such as Windex. Then I do an extra measure by washing gently with dish soap to make sure the acid is removed. Then I polish with a soft cloth and "Mothers" wheel polish. Just a bit... too aggressive and you will remove the definition. I focus more on the lower, heat treated area with the Mothers polish and go lightly on the upper etch. It sounds like a lot, but start to finish (after the hand sanding:-), the etching, neutralizing and polishing takes no more than 10-15 minutes. I have even scratched a blade while sharpening and cleaned it and re-etched the finished knife. You have to be careful, as this stuff will etch everything... I just dip to the guard/pommel and then refinish the guard/pommel with the appropriate grit. It only takes a few strokes to get it back to new. Make sure your blade is clean and free of oil before etching. I use Dawn dish soap and/or acetone to get it clean before etching so as to get a good, even etch.
I'm no expert by any stretch of the imagination... but am lucky enough to have a buddy that is willing to share his knowledge.
Hope this helps.
The hamon is done with a torch... no clay, thus the smooth, flowing line.