What are effective ways to test niches?

I think you are making it very tough on yourself trying to do this for zero cost.

What you will find is that what you save in money you will pay for in time. i.e. if you want to discover profitable niches without spending a dime it will take you a lot of time.

If you do not want to spend money. It is going to be very difficult to test many niches & if you do not test many niches at one time then..you need to have patience as google is not going to rank you within few days though it will be 100 to 500 monthly search volume.
Best way to test the niche is PPC...you will get idea of niche in short period...

I think you need to ask yourself what your real strategy is. You aren't testing niches with this approach, you are testing keywords. What do you plan on doing when you've tested a keyword? Test more keywords in more niches and set up a bunch if sites? You can rank for lots of low competition keywords in very competitive niches with no backlinking. This means you have to build an authority site on those topics...And, no, you don't need to be "The" authority site in your niche to get thousands of visitors from thousands of long tail keywords.

My suggestion is find a niche that you want to develop content for first. Don't let keywords determine your niche. And, remember there is a lot of ways to get traffic to your site and they don't all depend on search engines.

Use G adwords tool to find low hanging fruits and use blogger to host your adsense websites.

I usually test out a niche by setting up a squeeze page and 4-7 days of follow up then sending banner and pc traffic to it for a week. Usually about 500-1,000 unique visitors.

If I get a few conversion on the affiliate product I consider the test a success even if I lose money at first, at that point I survey the list, then create my own product and price it to where the campaign will be profitable.

writetoearn, I struggled down a similar path to the one you're describing. I started by doing keyword research and set up a number blog sites hoping to figure out which niche would get the most traction with the plan of then building out the winning niches. My ultimate goal was to make money via Adsense and affiliate links. Possibly even producing a product around that niche.

I connected up with an Adsense guru to help me along the way and I'm glad I did since even with his help this approach took a over 18 months before I could say I had identified my 'money' sites.

I started out with close to a dozen sites, now I have 6 that consistently bring in some cash each month. And yes, there are winners in this group, three sites clearly bring in the bulk of my revenue.

However, I can't say I was able to accomplish this with zero cost. I set up my own domains for each niche blog. Along with that cost I invested in a flexible Wordpress theme. I invested in a good keyword tool (ended up settling on Market Samurai).

Because I had to do this part-time, I found I didn't have the time to write all the articles myself so I eventually outsourced that process too. In my case time was money or spending a some money turned out to give me more time. Otherwise I could have seen myself spending even more hours away from my family just trying to keep my content fresh.

I've since come to the same conclusion as n_cool84; you can find profitable niches much faster, and for far less money by using PPC.

In addition to using PPC, I would have my landing page be a simple survey tool like phpESP and use the survey to ask your visitors one or two questions to narrow down what their interests or challenges are in the niche you're testing. Then use that information for your initial content.

If I would have used PPC & a survey tool I estimate that I could have found my money niches in a month or less. That would have saved me a ton of time and money.

I wish you all the best in your efforts!