The diode is there if a idiot light is not used. With the diode or the idiot light it keeps the engine from running after the key is turned off. If the light or diode is not used the alternator will continue to feed the ignition thru the ignition switch and you won't be able to shutt off your engine.
To eleminate the diode and idiot light hook this wire up to the accessory side of your ignition switch.
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