The wire is designed to not have interference on the “S” wire or the 3 wire depending on how the unit is labeled. They do this by spacing the S wire away from the L1 and L2 with the ground wire in between. 

When the wire is stripped back, you will see a black wire, white wire, bare copper wire and the red wire.  

L1-black, L2-white, bare copper wire is earth ground and the red is S or signal wire.  Depending on how the unit is labeled it could be 1 2 3.  1-L1 2-L2 and 3 is S or signal. 

If wired wrong, and some people do, you can get an E1 fault code. E1 is communication failure between the indoor and outdoor unit. Some people think the red needs to land on L2 or 2 terminal and white wire on S or 3 terminal.  If this happens the S wire is right next to a high voltage wire and could possibly induce a volts over on the signal wire causing the communication to scramble and get the E1 fault. 

Follow this wiring and you should not have any problems. 

Terminals for the indoor unit:

L1-BLACK WIRE

L2-WHITE WIRE

GROUND-BARE COPPER WIRE

S-RED WIRE