New Doc
Open up your Photoshop (I use Photoshop CS2) and make a new document. Or simply hit Ctrl+N on keyboard. You can use the setting I'd defined below or you can customize it with your own settings. But just make sure to keep Width and Height aspect ratio the same. We need to have really square shape picture.

Making Favicon
It's time to draw your own favicon. You can choose any pictures, graphic, text, etc, that is reflecting your blog identity. You have to spice up a little bit. Below is an example of mine. I prefered to use available shapes stock from Photoshop. remember you can use your own image or text. But if you choose to use text, just make sure to write the initial text only from your blog name to keep favicon short and simple.

How did I get images such above? here it is the way and some settings I use. Just as an example for you to go on.

And here it is the colour setting for foreground and background
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Than I give these layer effects. You can do this by Blending option in layer option menu.

Saving a Pic
Do you finish yet? Okey now save your work. Select [File] menu than [Save for webpage] option. Below is the setting I use.

Convert 2 icon
 Now you just get your basic favicon pic in .gif format (you can also save it in .jpg or .png). Now it is the time to convert it using some favicon generator engine. Have a nice day!!