As Irene Adler's carriage arrives at Briony Lodge, Watson describes how "a fierce quarrel broke out [between loafers trying to earn a bit of money by opening the door for her], which was increased by the two guardsmen, who took sides with one of the loungers, and by the scissors grinder, who was equally hot upon the other side... Holmes dashed into the crowed to protect the lady; but, just as he reached her, he gave a cry and dropped to the ground, with the blood running freely down his face."
After the rest of Holmes' plan had been carried out and he has located the photograph that the King of Bohemia had hired him to retrieve, he returns to Watson and explains some of the particulars of his plan:
"The matter was perfectly simple. You, of course, saw that everyone in the street was an accomplice. They were all engaged for the evening.""I guessed as much.""Then, when the row broke out, I had a little moist red paint in the palm of my hand. I rushed forward, fell down, clapped my hand to my face, and became a piteous spectacle. It is an old trick.""That also I could fathom."
In his description above, Watson writes that "the blood [was] running freely down his face," yet here he claims that he knew all along that it was merely red paint. Either he's lying to Holmes and trying to save face (apparently not willing to admit that he, a medical doctor, mistook red paint for blood), or he purposely misled his readers earlier in an effort to sensationalize his account.
