Saying "was" -at least 4 different kinds of "was"

Saying "was" -at least 4 different kinds of "was"
 

I am aware of several rules that govern when to use ESTUVE ESTABA ERA and FUI to mean "I was..." but one simple sentence has me at a loss. I think I know the answer -I just don't know WHY it is correct.

Here are the sentences ...
Someone asks me Que hiciste ayer?
I answer Yo estaba bailando,

I believe my answer is correct but why?
Why choose ESTABA over the other choices?
What rule governs it's choice?

Maybe I just need more caffeine -sigh

I would say fui a bailar.

"Estaba bailando" sounds incorrect to me, unless you have in mind a wider context where the answer refers to a specific moment of the night.

Something like:
--No me contestaste el teléfono cuando llamé. ¿Qué hiciste anoche?
--Estaba bailando. (So I was busy and couldn't answer the phone at that very moment.)

Otherwise, a better answer might be something like:
- Fui a bailar.
- Me quedé a bailar en casa.
- Estuve bailando toda la noche.
...

A good rule of thumb is to answer in the same tense that was used in the question.
Since the preterit was used, reply using the preterit.