Watercolor pencils usually look just like regular colored pencils. After you add water to them, they are able to take on the look of watercolors. The steps to work with this kind of pencil will be outlined here.
1. Start with a sketch of the subject. This part doesn't need to be too detailed. Don't shade this part, just put together the major points and lines.
2. Get a feel for what your colors look like by making a chart of them. You just need to shade a square that's small and then paint over this square with water. Try blending colors as well to see the effect it has.
3. Use the base colors for your picture and color the subject lightly and evenly. Shading does not come into play at this point.
4. A second layer comes next, and you'll want to leave areas that are highlighted blank while shading in areas that are shadowed.
5. The shadow color that's either black or a darker version of the base color comes next. When you use more than a single color for shading, you add dimension to your picture.
6. Your highlight color then can be used to help you color in highlights and areas that surround them in your picture. After this you can finish your pencil sketch off.
7. Get out a medium or small paintbrush of the soft type and use it to paint with water over the picture. You want the brush strokes to match the contour of the subject. Use a small amount of water first, and if you want a washed out effect you can add more. When you add more water, the colors will get lighter. Too much water and you have colors that may run.
8. After your first layer of water is dried out, you then will want to dip your pencils into water to use on areas that need intense color and more detail.
9. Finally, go back through the picture now if you wish to add some shading colors. This may or may not require water.
I'm also going to include a tutorial on how to sketch in the references. That way, you can work on drawing the initial subject that you need to do in step 1.
1 - http://www.wikihow.com/Use-Watercolor-Pencils
2 - http://www.wikihow.com/Sketch