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When I examine who they are swapping links with I can't believe it, so much off topic unrelated stuff. But here I am watching them rise in rankings. What should I do? Swap with off topic sites or hope that Google's algo improves where it can determine related and unrelated stuff?
A link is a link.
I try to stay on topic or as close to it as possible. In my industry there are only so many on topic sites so I have to try and get as close as I can.
I look at the sites, and if they look pretty good, offer some good content, and may be useful to my visitors, I'll link to them.
Before doing so, I check them out and make sure they are not spamming and have not linked to any bad places. Sure it takes a while, but at least I've tried to link to a good resource. I've linked to sites who have not linked back simply because I thought they were a good site.
On the other hand, if a site looks like junk, poor design, usability, etc, has links to bad places, I don't care how high their PR is, I won't link to it. How would linking to junk help my visitors?
As long as you link for visitors instead of engines, you should be OK.