how to find the best niche

the best way to find a niche is to look at what people are already buying ie if there is a magazine on it look at the ads for things in those mags either online or at your newsagent, look at amazon, ebay pulse, 43 things, buzz, trends and look around your house .....everything in it has probably made some people money. Make sure you also look at all the junk mail you get in your mail box as well and brainstorm from there.

For physical products definitely go for amazon. You can see the hot products here which is updated hourly and the most wished for here which is updated daily. If you put "*" in the search box on the homepage you'll get a list of categories and number of products.
As Leanne said, magazines are a good test, if there's a magazine for it then you can assume (after doing your due diligence) that there are a number of products related to that niche and that the people are buyers.
For information products look at whats already selling on clickbank or whatever. I guess the main point is if there are buyers then check out the niche more. Depending on your traffic strategy you might also want to look at whether the niche is content friendly i.e. can you produce enough content on the subject either on the niche itself or on subjects closely related to the niche.
The number 1 rule is that people are already buying. Adwords CPC will give you a quick measure of this, but check out what they're selling. Also, forget about finding an untapped niche without any competition and lots of hungry buyers. At least for now.