There are two ways to build up a character’s status. One way is to go to the Dwarf Clan Hall and whack the onyx stone beside the blacksmith. The other way is to use invincibility and beat on Ettin, the two-headed giant.
Dagger of Penetration
Start a new game. Before going down the first flight of stairs, find the lever on the wall next to the stairs. Pull it Up, Down, then Up again. After that, check all of the inner walls on the square shaped hallway that you found the giant ants in.
Eventually, you will find a secret compartment with a lever in it. Pull the lever Down and you'll hear a sound. Check around the hallway for a new passage. You will find three grenades and, (if you search the walls) a secret compartment with the Dagger of Penetration -- the second best dagger in the game!
Invincibility
While playing, pick up a skull from your inventory and press F9. Note that your health will drop when you take damage, but it will never drop below 1.