How do I erase all the data from my iwatch 3

If you unpair your Watch from your iPhone it will erase. If you are asking about erasing content to be able to sell the Watch, see this, What to do before you sell, give away, or trade in your Apple Watch, or buy one from someone else - Apple Support

I’m sorry I’m confused. If I unpair my watch and it there has all data erased, why would I have to do anything additional before selling it?

Because you have to remove the activation lock or the buyer won't be able to use the watch.

ok, thank you. So in my case, I am just trading my watch in. So erase all data, all I need to do is unpair it from my phone?

Yes,if you unpair it from the watch app that removes the activation lock as well.