It cost me 20k, but I think I learned a lot about this quest. First buy as many different sweets or snacks (bread and rice aka "crackers": it was the only thing I tried form in this group). (If you can get some people together it will costless.) You don't need a lot of them just different ones. Find the npc that are towns folk dressed up. Trade to them a different kind of treat until they give u an item instead of a costume. (Costume can be turned off like spells or some other effects that are displayed). So after doing this you should have gotten a Pumpkin head, Pumpkin head II, Trick staff, or a Trick staff II. Take whatever u received and put it on. If you read what the npc said you would see he thinks u should. Now you should get the opposite of the item u have equipped as the next drop. (Once you go through all the different times its time to go to another city and try again. Also I think u can only do each item once every 24 hrs but im not sure about this.)
See list:

Equipping_________Gets you
Pumpkin Head______Horror head
Pumpkin Head II___Horror head II
Trick Staff_______Treat Staff 
Trick Staff II____Treat Staff II

(This Idea I found on a forum on Allakhzam but I confirmed that it worked for me)
If u only want one of the Higher forms of the item do not get rid of any lower forms till u get it or u may get a lower form again.

Wish me luck im 7/8. Here I come Treat staff II

I got a pumpkin head II by trading a goblin chocolate to the banshee disguised guard at the gate to west ronfuare in south sandoria. Just though i would add that little bit in.

This update comes from Milotheshort,

Pumpkin Head 2 = Traded Melon Pie, then Ginger cookie to a ghost NPC

Coolness! I've added it to the list of events ;-)

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