How to factory reset my Apple Watch?

If you just need to reset your watch to clear problems, follow the steps in Unpair and erase your Apple Watch - Apple Support

If you are intending to pass the watch to someone else (gift or sale) then you also need to remove it from your Apple ID to release the Activation Lock. What to do before you sell, give away, or trade in your Apple Watch, or buy one from someone else - Apple Support

If it is paired to your iphone simply unpair it

Unpair and erase your Apple Watch – Apple Support (UK)

If not you can sign into FindMy app or https://icloud.com/find and first erase it, then remove it from your account.