I've done hand coloring quite a bit. My experience is that water colors are not that easy to use - or perhaps more correctly, I found that it's much more difficult to achieve the result that I want using watercolors.
My preference is for subtle, evenly blended pastel colors and for the sense that color is an inherent element deeply embedded in the image. To my eye, water colors sit on top of the image and are too obvious.
I usually use color pencils. I apply the color by gently rubbing the print with the side of sharpened pencils, and then blending and smoothing the color using balls of cotton, commercial cotton swabs, or for really fine work, bits of cotton wound around toothpicks. I have found that using a solution like Marshall's PMS helps prepare the print surface to accept pencil. By the way, I only use matte surface fiber base paper. My pencils are a collection of Marshall's photo pencils, and a large selection of other color pencils that I have picked up at various artists' supply stores.
I've also used some oil paint, especially in instances where there are large fields that require color (eg portrait backgrounds). The basic application principle is the same, although oil paints tend to be much messier to work with. The best paints I have found are Marshall's transparent photo oils, but I have also used ordinary opaque oil paints mixed with transparentizing solutions.