It seems kind of odd the way that steering shaft is set up, but this is how I did it.
Loosen nut #7. Now with a long punch, screwdriver or something similar tap lower nut #4 to set the torque. Check your progress, it don't need to turn much, a 1/16 " is a good start. When you think its good, tap the upper #4 nut so that it sets back on the lower one. There is a rubber o-ring in between the 2 nuts, and I haven't figured out the real meaning of having it there, but it's there so some engineer has made his daily wage. Now torque nut #7 back to speck and test again. You might have to go through this circus a few times to get things perfect. Always torque #7 before final decision for the pressure from #7 will move the #4 nuts just enough to cause a noticeable difference. When you are happy, carefully move the handle bars from side to side, just with your finger tips and see if you can feel any jumping, vibration, or such. Slowly and lightly!! If it feels anything else than perfectly smooth, it's time for a change.