You must use both methods because Google adwords tool will help you check the searching and competition of your choosing keywords. Always choose relevant keywords of your website that can bring too much traffic to website ..
Hi, if you are using less keywords then it will be good for you. As you can target them easily. But also use other keywords and synonyms and embed them in your website's content then it would be good for site. The main keywords which you will target can say them primary keywords and it should be 2 to 3 keywords only and besides this rest of the keywords would be secondary keywords which you can use in content and can also optimize them in inner pages.