This guide is to help you defeat the Balrog at the end of the Cave section. He is a troublesome boss that caused me to get extremely frustrated. This is the process I used to defeat him:
1) Equip both a strong melee weapon and a high-powered ranged weapon. The ranged weapon is going to be your saving grace when the endgame begins so make sure it's the most powerful you have/can buy.
2) Make sure you have a strong ranged spell, like Chilling Touch, and the Heal spell. The attack spell will eventually become null and void but the Heal is so damn important. Many of the guides I've seen for this game tell you to level up your SP and Luck before your HP. I recommend that you do this until around Level 50, then throw everything onto HP. Up your HP until it hits 2000 and you'll be fine.
3) Have a full allotment of potions of all sizes. These will come in handy during your descent to the boss' area as the lizardmen and wizards tend to have lots of freezing spells and they spam melee attacks with no chance of escape. It's a b***h but it should be fine as long as you heal.
4) The battle is broken into three parts: the jump and crash, the arm throws, and the bull rushes. For the first part, fire your ranged weapon as the Balrog stands in the middle of the lava pit (which you should avoid at all costs. Find one of the rocky areas to attack from as the stone sections get covered in lava) until he leaps up and climbs the walls. Once he lands, melee him as much as possible.
5) Repear Step 4 until the Balrog is hurt enough that he starts firing a chained fist at you. Attack the fist and destroy it. At this point, he's going to start charging you. His attacks are brutal and they can be in quick succession, so prepare yourself with your health potions and run away as much as possible. Once you get a fair distance away, turn and fire using your ranged weapon. He may stagger, allowing you to attack with your melee weapon, but you should save those parts for a well-timed Heal spell. Keep doing this until he dies.
There! Hopefully that will help you defeat this frustrating boss. If you have any questions, shoot my an XBL message.