I've got mine on 3, but there may be not 'proper setting' it really may all depend on what you're monitoring, the distance from station/mobile unit etc., type of antenna (rubber ducky, inside or outside) and perhaps a few more things as well.
The proper setting for your scanner in your environment is to put the scanner on a conventional frequency and turn the squelch off (to the point that you hear static when there's no transmission on the frequency). Then turn it up enough to quiet the scanner. Too far and you'll miss weak signals, not far enough and you'll hear noise (and the scanner won't scan, it'll hold on that frequency). If your environment is noisy you have to turn it up more than the same scanner used in a less noisy environment. And the "proper" setting varies from one scanner to another of the same model.