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Collar 1 should be left alone.
Collar 2 sets preload, good start is to have it just touching the spring so that you can wiggle the spring, but not really move it around; you don't want to put tension into the spring.
Collar 3 is where most of your raising and lowering come from.
Not disagreeing with nathanong87, just saying the same thing more or less.
As for the hight of collar 3 is where your ride height will come from. Just experiment with however you want your car to sit.
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