Experiment with different painting techniques. Use a dark pencil for the main color and highlight by going over the coloring with a lighter colored pencil. To help prevent this, try to minimize the amount of turpentine you use near the borders. Another way to help prevent the colors from bleeding is to draw the design on a piece of paper, then trace it onto the wood using a ball-point pen. The indented line acts as a small deterrent to the bleeding color.
Wood burning does an even better job.
A wonderful look can be obtained by rubber stamping and embossing an image onto the wood and then coloring in with the pencils. The raised embossed line will also prevent the colors from bleeding when you add the turpentine to your art. The one brands of watercolor pencils that we are familiar with are Faber-Castell. The pencils come in a number of differently sized sets or can be purchased individually. Most art supply stores and some craft stores carry the pencils.