How to find competitors/keywords.

Is this line of thinking correct ?

First I need to identify my direct competitors and after I have, I need to observe the keywords they use and rank for and use those too and try to outrank them by doing everything they do better.

Second part of the question, are my competitors the people that sell the same stuff as I do, or the people that have the same beginner domain authority as I have so I can actually compete with them.