my site now ranks number 2 and 3 in google for a 3 keywrod phrase but as I get paltry traffic from this i;'m wondering if I could have chosen my keywords better. Will I get penalised for changing one word of the title tag on the homepage or other pages? Also is it always wise to optimise fot the most popular kewords given that they're likely to be so much more competitive?
Drop the word penalized from your vocabulary. Changing a word in your title is not a punishable offense. Obviously, you may see some changes in your ranking based upon your title changes. After all, isn't that the point of making the change? With luck, you will see upward movement thru the serps.
I tend to optimize my titles for the page content. That may or may not include significant keywords on the page. What is the purpose of your page title? And when someone searches for your keyword, what do they see in the serps?
They see your brief summation of the page. It should be enough to encourage someone to click your link. That is, IMO, the best use of the title.
I have changed many titles on many pages over the last couple of years. I try to avoid duplicating, word for word, another page title in the same search. If someone ranks above me for a search, and I think my title can be tweaked, I tweak it. That's also a great time to verify the markup validation, to check the content, or to make other document changes that might help my page move into it's well deserved slot.