I have this Red Bump on my skin after sleeping with my Watch on

That's either heat rash or an allergic reaction to the materials in the watch. My guess would be heat, especially, if you typically sleep with your arm under a pillow for example, where the watch can't breath or cool with normal air movement. How long have you owned the watch and have you ever seen such a reaction for normal use during daily wear? Personally, I don't sleep with my watch on, because I typically sleep with the portion of my wrist where I wear my watch under a pillow.

Stop wearing the watch and see a doctor.

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