Once through the canal and at Melmond, you can visit the various shops in town and upgrade your armor and magic. The weapons here are not near as good as the weapons that you already have, unless you have a lot of thieves, in which case you might like a falchon or two. There is no Item Shop or Clinic in Melmond, so if you get somebody killed, or need to get supplies, you'll have to go somewhere else.
Melmond does make up for the lack of the Clinic by having the Level 5 LIFE Spell in the White Magic Shop, but only your White Mage can use it right now. On the Red Mage, I would only get FIR3 and CUR3 for right now, and leave a slot open for LIFE later on. You want to have as many people as possible with a LIFE spell, because you don't know who will be casting it. For the White Mage, I would get LIFE and HEL2, and you can take your pick between CUR3 and HRM3. If you don't have enough, at least get the LIFE spell, because it is virtually vital to survival; the other spells can wait. For the Black Mage, really the only spell that I usually get for him is FIR3, but I will also get BANE if I have enough. I have never found much use for SLO2, but WARP will be useful later on (he can't use it until the Class Change).
As far as armor is concerned, there are a lot of upgrades that you can make here. First, you can upgrade any Copper Bracelets to Silver Bracelets. In fact, I usually put a Silver Bracelet on everybody, because it is cheap and provides decent protection. The fighter actually can equip the Steel Armor, which is very good, but it costs 45000 G. If you don't have that much (which I usually don't), then I suggest you give him a Silver Bracelet. Also, the Silver Bracelet is the first bracelet that actually makes up for the huge difference between A and E% on the Black Belt. Now, I suggest you equip him with a Silver Bracelet, and also give him a Cap and Gloves for added protection. The fighter can equip the Copper and Iron Gauntlets, but the Iron ones cost a bit more. If you have enough, buy Iron Gauntlets for all of your fighters. If you don't have enough, just hold off until you do (don't waste money and time buying Copper Gauntlets). The fighter can also use the Iron Helmet to upgrade his Wooden Helmet. Equip all of your fighters with these eventually, too.
Once you have upgraded all that you want to upgrade, then I suggest that you level-up a bit before going on. The next step is the Earth Cave, so if you want to level up in there before actually trying to beat it, that might be a good idea. In fact, in the westernmost wing of the first floor of the Earth Cave, you will run into Giants and Iguanas at every step, which are dangerous, but have a lot of EP. If you don't want to try this, you'll have to find something else, such as the area around Melmond, but nothing else is really as good. If you want a real challenge, there is an area northeast of Pravoka at the tip of the peninsula where you can hit enemies that you shouldn't be able to hit until later in the game. Many of them are succeptible to FIRE spells, so if you have FIR2 and FIR3, you may want to try it. It will be difficult, though. Whatever you use for leveling up, I suggest you level up to at least Level 12 or 13 before trying the Earth Cave.
Once you have sufficiently leveled up, you are ready for the Earth Cave.
Go on to the Earth Cave
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