Passives: max the p.atk and .def passives, lvl1 creature item expert, hunter armour (lvl40) and melee weapon: dirk passive (lvl90). If on a non-pet class consider investing into 5 lvls of max mp and mp regen, as the nightmare has a small mana pool.
Staged Nightmares should have at least 1 lvl in each of the staged skills.
Best DD build: any combination of Str, P.atk, atk speed and crit ratio work well. Gear: (Hunter Armor + dirk). If considering using equipment with a durability stat, the most popular options are: forceful, ardent, eager and savage.
If your nightmare is under lvl90 you may use a 2h weapon to maximise skill damage output. Due to the fact that the Nightmare only has one spamable skill, a spear is a better option in most cases than an axe. Once it gains the dirk passive at lvl90, a dirk should be used due to the increased atk speed and crit ratio.