Put the bottom step flashing on the starter course, then bend the bottom of the step flashing out about 1" to 1 ½" away from the wall. The top of the step flashing is still under the siding or plaster. You do have to trim the top starter course shingle with a triangle shaped cut to allow this.
This does leave a triangular shaped void between the bottom of the step flashing, the wall, and the shingle, that can be filled with caulk. This will divert the water away from the lower wall so the water does not run down the wall. More.
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