Hi @Zabobon & @peternlewis, I have equipped all my macros (and there are quite a few 
) with individual items for better illustration.
I can't see any deterioration or delay of KM.
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It should be pointed out that the Icon Chooser offers a lot of options and customization:
Using Custom Icons and the Icon Chooser
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Another take on this is to use just text for the image or a mix of text and image for the image. Here is a Mail palette using a mix of images and text as images:
And a Finder window with the macros imbedded in the window's Toolbar:
Also to note is that on a tech support call with an Apple Senior Tech, I was advised to use 1024x1024 for icons or one of the other lower resolutions like 512X512 to avoid potential errors and I've been changing the image type to "icns" before dropping it into the image well. Changing to icns has the added advantage of displaying the icon image as the final icon in a Finder list view with the background displayed correctly if it has a transparent background which I think looks cleaner.
Yes, as @JMichaelTX says, the Icon Chooser allows lots of customisation. And I do use Keyboard Maestro's Icon Chooser when I want to use an App icon. Like say, for Photoshop . Or if I just want a letter or standard symbol.
What I'm curious about (and maybe @peternlewis could answer?) is if it makes any difference if I use the Icon Chooser to add Photoshop's icon to a palette rather than grabbing that icon and pasting it into the Macro's image well (assuming the icon I'm pasting in is quite small).
Ever since I started using Macs I've loved the ability to change an icon for a folder or file on the Mac by just invoking its Get Info window and pasting a new icon into the icon well in that window. So, doing that in Keyboard Maestro feels natural to me. It also allows me to make my own icons and use those.
I like to use PNG files for my own custom icons and agree with @BernSh that it looks better to have icons with transparency.
I also have a "blank" icon which is just a small PNG with no image but transparent background for when I don't want to have any icon - to make a gap in the palette. I find this makes the Palettes easier to read.
Here is the PNG image file I use for that:
Blank.png.zip (1.8 KB)
I haven't managed to find any way to use Keyboard Maestro's inbuilt Icon Chooser to make a "blank icon". I wonder if that is possible?
Hi @Zabobon, I regularly use large PNG images (Internet or Affinity) to better display my macros.
I don't have to care about the size of the image, because KM converts it to its own size (64 x 64).
Here is an example:
Do you already know this KM plugin from @DanThomas?
It is indispensable to organize the pallets. Give it a try.
Wow! That is great to know. I won't worry from now on 
︎
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Yes and I use it all the time.
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Yes. If you choose it from the Icon Chooser, Keyboard Maestro will record just the bundle ID. If you paste in an image, Keyboard Maestro will record the entire image.
You can make a blank icon with the Icon Choose just by adjusting the character transparency to 0.
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Great. And can I copy and paste this "blank" icon into the image wells of other macros? Or will that create an image rather than the bundle ID?
Hi @Zabobon, unfortunately the name of the first action will always appear in the macro or you have to assign an individual name.
But if you can live with a very small dot, I have something for you.
I have created a template macro for myself:
~:Desktop. <0302 200904T213022>kmmacros.kmmacros (1,1 KB)
I have inserted the template macro itself into an AppleScript that I can call from my KM palette:
24)Blank Item <669F 200904T213108>.kmmacros (31,5 KB)
Now I just have to activate the macro group (here Finder - blue background) and then call my macro with the AppleScript and I have a blank placeholder with a very small dot 
Maybe this will help you...
Thank you @appleianer that is very interesting. I was actually just trying to simplify making a blank icon for an existing Macro rather than a placeholder with a blank icon.
But one improvement I could suggest to you for you blank placeholder. You do not need the small dot. You can just type a "space" after the 03)
Then you get a completely blank placeholder without even a dot.
So instead of naming the Macro with a dot:
Just replace the dot with a space:
Then instead of this:
You get this:
What is neat about this is that the "space" naturally leads to the blank placeholder being alphabetically listed above all the other Macros with the same number:
So, it is easy to put the blank gaps where they are needed in the Palette.
Taking onboard your system @appleianer I have tidied up my Finder Palette with gaps between my categories of Macros which makes it even easier to read at a glance. Thank you very much for suggesting this.
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Unfortunately, copy & paste of any icon will generate an image.
Instead, double click the source icon, which will open the Icon Chooser with that icon, then select the destination icon and click the icon in the icon chooser to set it.
Is it possible for you to change KM's behavior in doing this, so that KM puts the path to the icon on the clipboard, and then when it is pasted you read the path on the clipboard?
IOW, put private flavors on the Clipboard to use, like many apps do.
I think this would be a huge productivity improvement. In fact, while you're there, if you want to really help us out, go the next step: Copy the path of the selected macro image, and then let us select multiple macros and paste the path into the selection.
I'm still unclear on how to insert a custom image via the icon chooser? If dragging a PNG is not advisable?
Where is the upload feature?
I don't think you can.
You can "customise" the various Character Catagory icons in the chooser (setting colour, size, transparency) but you can't add your own custom image.
However... simply copy any image to the clipboard, click once in the icon image field in the macro and paste and your custom icon will be there.
The only possible downside to doing that is some people have reported a slowdown in the Keyboard Maestro editor.
But I and other users including @appleianer have had no issues simply copying and pasting icons and it is very simple to just try this and see if it causes any problems on your system. If it does cause a slowdown you can just delete the icons.
I think I have about 1,100 custom icon images with no slowdown.
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Wow! I'm glad to hear that, but I am very surprised.
I wonder what is different with your setup from others that have seen a slowdown? (that's a rhetorical question -- no reply needed)
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I’m not sure of the correct etiquette for replying to a rhetorical question... 
... but the answer might be that it has something do with having a Solid State Drive and generally fast computer @peternlewis mentioned that in an earlier reply.
I am aware that the practice of pasting in icons is not officially recommended and it’s the first thing I’ll troubleshoot if the Editor has problems. But so far none. And that’s over several computers all with different specs and of different ages - all Macros synced through Dropbox.
Well, since you asked, the proper etiquette is no reply.
See What is a Rhetorical Question?.
But that's fine. We are not big on etiquette around here -- only in being friendly and helpful.
IMO, the best/optimum response is a change in the design of KM so that everyone can use custom icons without any impact. Maybe that will make it onto Peter's todo list someday. Since I don't use, or need to use, many custom icons, it is not a high priority for me. YMMV.
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