without any context I would say 'watched' is more natural - using the past simple. However, we can say I WAS watching ... using the past continuous.
Last night I watched The Walking Dead.
Last night I was watching The Walking Dead when the doorbell rang.
Hope this helps,
They mean different things, so they can't be used interchangeably. Also the second one is un-grammatical and should be "I were watched".
The first one (given no other context) is an active verb. "I watched, she watched, he watched" etc..
While the second one is passive. "I was watched (by someone else). "
Same meaning as "they (subject) watched me (object)"
I assume you wish to know the difference between these two tenses: "past progressive tense" (was watching/were watching) and "past tense" (watched).
"I watched the clouds go by" -- I was watching the clouds go by, but I am not doing it now
"I was watching the clouds go by (, when something happened)" -- describing something you were doing at the time, in relation to another event.
Each have their uses, but as Annie said the former could be considered more natural.