I personally use muddler for compiling lua and json files into a mudlet package xml, but that's in part because I'm creating things for distribution. Muddler does have a CI package which allows you to watch for successful builds and remove/reinstall the package, with optional pre/post remove/install hooks.

Alternately, you could use file watches (https://wiki.mudlet.org/w/Manual:Lua_Functions#addFileWatch as an entry point) to monitor files for changes and reload them. You'll want to be careful to write your stuff in such a way it survives a reload in a desirable fashion in either case. You could look at the Muddler CI package for an example of a filewatch, since that's ultimately what it is using itself.

VSCode has a Mudlet extension which downloads the API docs from the wiki and sets up tab completion and in-line doc which is super handy.