on your iPhone, in Settings —> Privacy —> Location Services —> Share My Location, under My Location does it show both “This Phone” and “Cellular Apple Watches”?
on your Watch in Settings —> Privacy —> Location Services, is “Location Services” turned on?
I think that is the opetion that allows Watch to be used for location to trigger automations.
In that case, I am not going to be able to be much help, sorry. I thought that the watch could be used for triggering location in Home and Personal, but I have never tried it. It seems from a trawl of the internet that the location services listed for the watch are, perhaps, only relevent to Find My location and not automation.
If your apple watch connect to your wifi you can have another computer listen to when apple watch connects to the wifi (meaning you are probably home).