Step 1 – Spin up a Ubuntu 12.10 x64 droplet

Step 2 – Install Squid

apt-get install -y squid
update-rc.d squid3 defaults

Step 3 – Setup Access Restrictions

Since this Squid proxy would allow anyone using it to make connections from your droplet’s IP address, you would want to restrict access to it.
You can register a free dynamic IP from services like noip.com

If you would like to use this Squid proxy from your phone, you would have to install a dynamic DNS update client.
You can use applications like Dynamic DNS Client for Android, or FreeDynPro for iOS.

Once you have a dynamic IP hostname, you can update it from your router at home, mobile device, or an API call.
This hostname should be added to /etc/squid3/squid.conf. Edit the file and add your hostname (nyproxy1.no-ip.org in our case):

acl myhost srcdomain nyproxy1.no-ip.org
http_access allow myhost

Setup a crontab that reloads Squid every hour, in case your IP address changes:

echo 0 */1 * * * service squid3 reload >> /var/spool/cron/root

Step 4 – Configure Squid Proxy

By default, Squid listens on port 3128. If you would like to use a different port, modify /etc/squid3/squid.conf

http_port 3128

If you would like to browse through this Squid proxy and not have it detected as a proxy, setup anonymous settings by adding these lines to /etc/squid3/squid.conf:

via off
forwarded_for off

request_header_access Allow allow all 
request_header_access Authorization allow all 
request_header_access WWW-Authenticate allow all 
request_header_access Proxy-Authorization allow all 
request_header_access Proxy-Authenticate allow all 
request_header_access Cache-Control allow all 
request_header_access Content-Encoding allow all 
request_header_access Content-Length allow all 
request_header_access Content-Type allow all 
request_header_access Date allow all 
request_header_access Expires allow all 
request_header_access Host allow all 
request_header_access If-Modified-Since allow all 
request_header_access Last-Modified allow all 
request_header_access Location allow all 
request_header_access Pragma allow all 
request_header_access Accept allow all 
request_header_access Accept-Charset allow all 
request_header_access Accept-Encoding allow all 
request_header_access Accept-Language allow all 
request_header_access Content-Language allow all 
request_header_access Mime-Version allow all 
request_header_access Retry-After allow all 
request_header_access Title allow all 
request_header_access Connection allow all 
request_header_access Proxy-Connection allow all 
request_header_access User-Agent allow all 
request_header_access Cookie allow all 
request_header_access All deny all

Step 5 – Start Squid proxy service

service squid3 start

Step 6 – Modify your browser’s proxy settings

Step 7 – Verify Squid proxy works

Navigate over to whatismyip.com

And you are all done!
By Bulat Khamitov