I go back and forth between 3 and 4.
Dream Warriors has the best storyline and characters of the series. It's also the last scary entry.
The Deam Master has the best filmmaking of the series. The last one with some truly iconic images. Toughest lead girl of the series. Freddy's best death (not the method, his actual death sequence).
New Nightmare is great, but I don't consider it canon.
Probably after Dream Master, because we know how silly part 5 and Freddy's Dead were, especially Freddy's Dead, which is the worst one in the series in my opinion. I didn't mind WCNN, because it goes back to the original, with Freddy being dark and creepy, and also being an ancient, evil entity, which comes out of the movie screen, I thought was brilliant from Wes. Freddy vs Jason I thought was ok, nothing special. I know the remake is very flawed in most people's eyes, and yes it did piss a lot of people off - myself included - that they didn't ask Robert to play Freddy again, but honestly, I did like it better than dream child & Freddy's Dead. Just my opinion.
I love all of the sequels in their ways... but my vote is part 4 for several reasons (even though I love Freddy's Dead and New Nightmare): a.) Freddy and the series were at an all time high in pop culture then; b.) Story-wise, despite the hasty plotting and script writing, it introduced some form of closure to what the Nightmare series built upon and what the first four films presented, ending on a high note with empowerment and incorporating other themes Wes brought forth in the original; c.) the effects (at that time) were very creative and impactful; d.) then, our public consciousness wasn't so "Freddy flooded" and jaded; e.) It was the most successful performing Nightmare film... I could go on, but it would've been the best time to stop, IMHO.
If I was in charge back in the day I would have ended the Elm Street series at the end of either Nightmare on Elm Street 3 or 4. Elm Street 4 basically saying you may have defeated Krueger again holding him at bay but he'll just return again and again to haunt the next generation of teens
Part 3. It was the perfect ending. When a dog has to piss fire to awaken you in the next movie you've lost the plot. Plus 4 is by far my least favorite. Would've loved to have New Nightmare after part 3.