To choose the right type of keywords here's a few things that will help you:-

1. Try to understand the subtleties of different search phrases
2. Figure out what stage of the purchasing cycle they might be in
3. Analyse the competition of that keyword
4. Track and analyse which are your converting keywords, not just the keywords that get you the most traffic

Understanding the differences between search phrases
This is crucial to driving the right kind of people to your site. Different search phrases can mean different things, for example there is a vast difference between 'online fashion' and 'designer fashion'. Whilst both of these terms may seem fairly similar, the types of people looking for designer fashion are a different crowd compared with people looking for an online fashion shop.

Understanding the differences in keyword phrases means you will need to try and get inside the mind of your target audience and really comprehend what they're looking for.

To give you an example, I was on a phone call recently analysing a site for someone. We discovered after some keyword research that the information he was displaying on the site really aligned itself to keywords like 'last minute accommodation' as he was only displaying the next week's worth of deals. However the keywords he was targeting were 'cheap accommodation' and other variations. The fact that his prices weren't the cheapest on the net means that this was a bad keyword choice.

Understanding that people who type in terms like 'cheap' and 'bargain' are price-driven gives you an insight into what they are like with their purchase decisions. If your prices aren't the cheapest then chances are these types of people will keep looking around until they find the best price.

Purchase cycle stage
Depending on the type of site you have can change the keywords you try to target. If you actually sell products online then you will want to use terms like 'buy' and 'purchase' in your keyword choices. If however your website acts as a branding tool or an information site then your choice of keywords will be different.

Understanding the stage of a customer's purchase cycle (research, evaluation or decision stage) can influence the keywords you target. I used to run an MP3 player reviews website so I will use this industry as an example.

For example, someone in the research stage looking for an MP3 player might start off with high level keyword terms like 'mp3 players' or 'iPod info'.

When they're in the evaluation stage they might start looking for the pros and cons of these types of players or 'iPod vs sony'.

When this type of customer gets to the decision stage they will start to look for terms like 'iPod deails' or 'mp3 player sale' etc.

Analyse the competition of a keyword
Probably the easiest way to do this would be to use the allintitle: advanced operator. Once you have some keyword variations, use the allintitle: command to see how many pages on the net have this term in their title tag (note -  the allintitle: command tells you how many pages on the net have a keyword term or keyword phrase in the title. For example if I was to type allintitle: ipod this would tell me how many pages in that search engine's index have the term iPod). Let's take a look at the competition for the following keyword variations:-

iPod                          - 23,600,000 pages
iPod Nano                  - 2,930,000 pages
iPod Nano 4gb            - 223,000 pages
iPod Nano video 4gb    - 17,400 pages

By doing this simple bit of competitive research I'm able to see the competition for all these different terms and evaluate which of these terms might be easier to rank for.

Track your converting keywords
It's all well and good to rank number one for certain terms, however, if the don't send you any traffic or they send you untargeted traffic you won't convert them. The easiest way to track your converting keywords is to set up a goal funnel in your statistics or just ask people over the phone when you speak with them, "can I ask what you typed into Google?". Mark this down somewhere and keep track of what terms are driving customers and not tyre kickers.

In closing, the thing you want to remember most is to take a holistic approach to your keyword selections. Can you rank for these terms? Will these terms convert into customers? Is the amount of effort needed to chase higher level keyword terms worth the return?

As you go through your site and make more and more changes and analyse things, you will get to know what works and what doesn't. The main thing is to keep track of everything, unless of course you have a phenomenal memory!