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I *believe* that if you walk above 3.5mph (which it can tell you are walking and then also pull gps off your phone) if will count as exercise. If your heart rate is elevated it will count as exercise.

You can start an 'outdoor walk' but if you go 1mph and your heart rate stays low it will not count as exercise. if you choose 'indoor walk' and your heart rate doesn't elevate it will still not count as exercise. "other" exercise counts as exercise no matter your heart rate.

I'm not 100% sure on all of the above, but I use the watch a LOT for fitness stuff and this seems to be what I've observed.
 
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