Let's see if this thread can rank high for "Over Optimization"

Even You should keep in process to build back-links in order to make Keyword position safe. Its good to build more natural link building with care like when get a chance build few No-follow back-links too .Don't aggressive to that keyword to achieve rank 1 .

Yes there is OOP penalty / Penguin algo.

You seem to have balanced approach. What you can do on top of it is, SERP analysis of existing top 10 sites for respective keywords.

It will give you insight into how much the sites at #1 & 2 are stronger than your site and in which area.

You can also do anchor text analysis of the existing top 10 to fine tune your strategy.

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Lets say, you have a keyword 'web hosting' on your page, and you are linking this keyword with same page of another website... This would be considered as over optimization or spamming. As far as I know, link building is a ongoing task, if you stop it at your end probably your competitor will take over you some day.

Yes, there is something called over optimization and it may cause penalty. No matter whether the position is 3 or 5 or 40. If your links are natural/natural look, you can keep on your link building work. Discussion of scottmacair seems effective and helpful.

build links like human not like bots .
and you should follow the basic rules of on page optimization. I don't think its a good idea to stop link building ever.

If your site didn't fall back when the Google Penguin rules happened, your site is probably OK. All that stuff happened fast and pretty much overnight. Good content and conservative on the back links is the way to go. In my opinion, over optimization for the keywords is when people use them too many times in their content or make them the anchor text too many times. Too many times can be more than once or twice in a post. Since the changes, you are supposed to vary the anchor text and vary the main keyword somewhat. For instance if your main keyword is fortune teller, you can use fortuneteller, fortunetellers, fortune-teller, fortune telling and so on for variety. Hope this helps. Carole

I watched a webinar on seo after panda, here's some of what they taught- as far as BL's --continue to build but do more kw variations like make a list of 15 KW's and use a different one each time but stick to the 15. Here is some other points from the webinar---do article interlinking on your site,suggest other pages (keeps people on your site longer and increases your visit time score) kinda like wikipedia (unlike ezinearticles)(suggest or recommend a product in article with a link to another page in your site), write on topics vs keywords and he suggested food dot com site as example of topic writing. Mix some keyword articles with topic articles (kw titles, topic titles) Examples of titles for kw article: "How to cook Prime Rib" for topic article: "Cooking the best Prime Rib I ever had" Quality score for your site is partly on static elements such as a Contact Page, PPpage, page layout, about us page
along with user experience, time they stay, fast loading and dynamic navigation.
Do not repeat the same kw and don't overly bold and italisize words (over optimizing )vary the kw a little with post titles, H1 H2, use 3-4 similar but varied kw's per page, like LadyCarole said above and diversify anchor text kw's. A better (panda score) for your site will give you a better ranking with less backlinks then a lot of BL's and low site score. He mentioned that a dynamic navigaton increases your site quality score, that is the navigation changes by showing related posts- for example: youtube changes video choices on the right with category or brings up related videos every time you click on a new category video. (Static navigation is ok in the header and footer.)
Hope that helps someone.

With the changes I think there is over optimization and varying the anchor text you use is very important.

From the way I see it you need not keyword stuff onsite and have lots of relevant content on page trying to rank. Build links slow and steady with varying anchor text on do & no follow sites. In your niche is great but not in your niche is fine also IMO.
Good luck

Well, this thread is currently ranked at 26 for "over optimization". With a bit of backlinking ...

Lets say, you have a keyword 'web hosting' on your page, and you are linking this keyword with same page of another website... This would be considered as over optimization or spamming. As far as I know, link building is a ongoing task, if you stop it at your end probably your competitor will take over you some day.