Go to the shop in Imasho town and talk to a man at the back, he'll give you some chalk, give the chalk to Ekie (the bald fat dude) he gets upset but gives you The tale of the hike, give that to Magoichi (The one with the gun) he is pleased, he will give you an emblem, give this to Kotoro (the ninja) he gives you a melon, go back to the shop and talk to the man again, he promises to repay you later! After you ride back to Imasho on the Iron Horse go to the shop and talk to him again he'll finally give you the orange necklace! (this lets you see hidden red orbs!)
Make sure Magoichi is your closest freind, (give him books, the shoes, the gun & the pair rings.
After you talked to the weird ugly woman in the market, Magoichi should be standing in front of the pond after you've seen the women kill your mum!
He'll say something like "I've made this bomb for you, use it wisely!"
then go to the first dragon shrine (which is extremely near!) and you should see a pile of rocks covering a passage, stand infront of it, press start and use the Saiga Bomb, It'll open the hole & there should be a chest in there containing the Green Necklace! (this will let you see hidden demon packages!)