Well, since the directory needs to be writable, the best place to put it would be outside the document root. So if your document root is /home/something/public_html/, then you could put the cache directory at /home/something/page_cache/. It will work fine above the document root as well. Just make sure this directory is writable, or file based caching will not work. PageCache 2.0 automatically comes with a default caching directory, but I recomend changing it for security reasons.

NOTE: Make sure that this is an absolute path and is writable (and ends in a '/').

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