This is it, the big nightmare. If you've already experienced the damage from hard, this is worse. Expect to take about 250-400 damage per hit when doing this run. Even basic chompie attacks will do around 100 damage.
The strategy for nightmare is basically the same as it is in hard, focus more on hit and run tactics and survival rather than damage as the game is far more unforgiving than in the hard difficulty.
Also, like hard, the difficulty is inversely related to how many skylanders you have, as the more meatshields you have, the more damage you can take.
Probably the hardest part in the game is the final fight in Fantasm Forest where you face off against two tech golems and an assortment of trolls. The golems are particularly deadly as getting caught by their barrage will usually mean the death of two skylanders (first your active one, then the next you summon will be right in the middle of the barrage and will immediately take 1,000 damage from the rest of the barrage).
My tips from my hard guide are still relevant here so I'll repost them:
1) Prioritize your enemies. Take down those which will give you the most trouble first. Generally Spell Punks would be top priority (especially life ones) followed then by ranged units. After that, it'd be whoever tends to be hardest to avoid.
2) Swap out your skylander when it's health is low. A defeated skylander can't be used for the rest of the stage, so it's best to pull them out until you can find health.
3) Use Elemental gates as rest stops. If you open an elemental gate, all skylanders of that type will slowly heal while inside. So it's beneficial to just sit in there and soak your wounds for a bit.
4) Make use of Charms and Legendary Treasures. Basically, each charm and legendary treasure you place on a pedestal will power up your skylanders a bit. It's not much, but any help is better than no help. For the treasures, try to use ones that give max health or crit chance, as armor won't mean much and elemental power only takes effect in areas your skylander is marked strong in.
5) Don't fight everything. Most fights are skippable if you just simply run past the enemies and onto the next level. Otherwise, if you drag yourself into each fight, that just means more opportunities to take damage or worse, lose a skylander
6) Use a weaker Skylander for rail segments. Basically, any time you take a turret or do some rail grinding, use one of your lesser used skylanders. This is because what skylander your using has no bearing on that segment and also if you mess up, it's not your star fighter that takes the hit.
Now, if you do make the plunge and get some extra skylanders, there are a few I'd suggest:
Double Trouble: His Eldrich Beam has auto lock on and does decent damage, allowing you to focus more on dodging than attacking, and when being chased he has his suicide clones that he can keep dropping. Easily one of the best fighters in the game.
Flashwing: Use her in an enclosed space and she turns the area into a bullet hell shooter. Also, she can heal herself in a fight by sticking by her crystals, which is also quite handy.
Ghost Roaster: His ectoplasm mode allows him to become invincible at the cost of health drain, but that drain is far less than what a nightmare enemy will do to you.
Lightning Rod: His Zapper field can stun enemies, preventing them from attacking you, and any enemy not attacking you is a really good thing in nightmare. You can even get them locked in an infinite combo.
Magna Charge: With this guy's magnet related abilities, you can disable several enemies, forcing them to watch helplessly as you pummel their friends to death with their bodies (Or more efficiently, chuck them off a cliff). He's also one of the speedier skylanders out there, making dodging attacks easier.
Night Shift: Normally, melee units tend to be a bit disadvantaged, but this guy has several things going for him. First, he has a really long reach, so he doesn't need to hurl himself into danger to win. Second, his Vampire Bite will heal him (30 HP when upgraded, 20 otherwise), upping his survivability. And finally, his bottom half is probably one of the best bottoms in the game as it allows blink-teleporting to escape danger quickly and also had the ability to protect you from a fatal hit. In fact, I can't think of a single swap character where the Shift bottom makes for a poor pairing.
Pop Thorn: While on the little on the slow side, his attacks come in two flavors: Airthrower with large area of effect, and homing missile barrage. Both are quite useful against the enemy hordes.
Rattle Drilla (Top half Rattle Shake, Bottom half Grilla Drilla): When you combine these two Skylanders, you get the Turret Lord. You'll be able to lay down 3 turrets (2 coconut, 1 snake) quickly that will tear into everything nearby, allowing you to focus more on dodging or using ranged attacks. One thing to note though: Unlike with Sprocket, enemies ignore these turrets, so you can't use them as decoys, but on the flip side, you don't have to worry about them being destroyed.
Roller Brawl: She's a good melee comboer on par with characters like Stealth Elf, but where she shines is her headbutt. It'll do a decent amount of damage, but also knock back and briefly stun the enemy. You can also chain headbutt characters too. She also has speed on her side, allowing her to hit and run with ease.
Sprocket: Her turrets make for a decent distraction, but they don't last long and take too long to set up in combat, but where she excels at is her proxie mines. Sow them everywhere like Johnny Appleseed and reap the rewards.
Spy Rise: He's got a nice, powerful laser (which can actually destroy Mesmerelda's bombs in her boss fight) and can finish off an enemy for a nice bit of health. His bottom half is also great for an escape as you can't be harmed while ascended.
Star Strike: While having a bit of a learning curve, once you get the tempo of her orb attack, it will tear through most enemies. She can also reflect and/or nullify most enemy projectiles, leaving you to only need to focus on staying out of melee range.
Stink Bomb: Probably the best of the lower halfs here. The Bomb half can release a stink cloud that stealths you, whereupon the enemies will just sit there and do nothing for a few seconds while you wail on them.
Terrafin: He can dive underground, avoiding all damage while submerged. The ability to escape a major attack and/or a large cluster of enemies is worth it alone, but he's also no slouch as a melee fighter.
Whirlwind: Her storm clouds, if upgraded, will generate lightning between them, giving you a massive area of effect attack that will do some good damage. Also, she can heal allies, making her a great choice for co-op mode.
Zoo Lou: Another great summoner fighter. You can focus on evading while keeping your wolf summon out and spamming your birds. I don't suggest using the boar though.