What a moving average does

A moving average replaces each bar's price with the average of the last N bars. The result is a line with the randomness partly smoothed out, which makes direction easier to see. That is the entire job.

Two variants cover almost all use:

SMA (simple) — every one of the N bars counts equally. Smooth and slow to react. An old bar leaving the window moves the line just as much as a new bar entering it, which is why SMAs can step oddly when a spike drops out.
EMA (exponential) — recent bars count more than older ones, with the weight decaying smoothly. Reacts faster to new information, so it turns sooner. The trade-off is that it also reacts to noise.

SMA or EMA

For slow, contextual lines — the 200-day that tells you what regime you are in — the difference is barely visible and the SMA is fine. For faster lines that you want turning quickly, the EMA's responsiveness is usually what people actually want. There is no deep reason to agonise: pick one per line, be consistent, and judge it by whether you can read it reliably rather than by which one performed better on a backtest you ran once.

How to read one

Three readings, in order of usefulness:

Slope. Is the line rising, falling or flat? That is the trend, stated plainly.
Position of price relative to the line. Above a rising average is the classic uptrend posture; below a falling one is the downtrend posture.
The line as dynamic support or resistance. In a trending market price tends to pull back to the average and bounce. This works because other traders are watching the same line — not because the line has physical force.

What it cannot do

It cannot tell you a trend is starting. By the time a 50-period average has turned up, price has already moved. It cannot tell you where to enter with precision, and in a sideways market it will produce a stream of false crossovers that cost you money on spread and swaps. Moving averages are a context tool: use them to decide whether you should be looking for longs or shorts, then find your entry elsewhere.

There is a full reference page for this indicator with the formula and parameter notes at /indicators/moving-average, and the exponential variant at /indicators/ema.

How to check this yourself

Put an SMA(50) and an EMA(50) on the same chart. At every significant swing, note which one turned first and by how many bars. Then look at a stretch of sideways chop and count how many times price crossed each. You will get a concrete feel for the trade-off — the EMA turns earlier and whipsaws more — which no amount of description can give you.