@breakthrough:
Reacting to your opponent is definitely a weakness of yours. I only played you a few times but I already know your game: shop bair with falcon and hope it hits. Not that shop bair is bad, but when its the only thing you are doing, it becomes very exploitable like everything in this game if you are too predictable.
With regards to actually reading and reacting to your opponent, you do need to actively pay attention to what they are doing. You need to recognize what patterns they are utilizing, how they like to approach, how they like to defend. The more you play, the faster you will become at figuring out what they are likely to do in most situations. Then, once you have a pretty good handle on how they move and what moves they like to use, you need to figure out how you are going to punish that move. For example vs you, I noticed right away that if I gave you space you would do shop bair. I also noticed that when you do the bair you are usually moving towards me, which is poor spacing. A few ways I know I can punish that:
1) Wait for you to land and dash grab. Since you were moving towards me as you landed this is an option
2) When you jump, run in and usmash before your bair comes out. If the opponent is alert and changing his movements often this won't work probably, but I was pretty confident in your pattern of movement.
3) Properly space an fsmash to hit you when you land.
And there are many more ways to punish it. But if I'm playing you for example, I would recognize the pattern, figure out how to punish it, and then put my focus on executing one of those punishes.
So to recap:
1) Figure out patterns in their movements and attacks
2) Think about how those patterns are punishable
3) Find the openings when you can execute the punishes you've thought of and attack!