Should I use an external hard drive to store the files while editing and how should I do this?

Getting used to FCPX and want help learning how to store my Canon D60 Video files on either my internal Mac book pro or on an external hard drive while editing projects?   Do the files need to be transcoded on the computer drive or can that happen on an external HD?
Thanks,
Greg

Well, in my opinion, it all comes down to speed. There are a lot of editors that swear that working with footage on your system drive will do all sorts of horrible things, cause crashes, etc. Really its a bunch a malarkey. The most it will do is slow you down when your system needs access to the drive. Bandwidth is bandwidth is bandwidth - its all the same. If working with video on your system drive caused crashes, so would doing thousands of other things and we would all have dumped apple long ago for Microsoft or linux.
Here's what I tend to get for sustained read speed on various drives (ie reading a few large files like video files):
USB 2.0: 25 - 30 MB/sec. Drive RPM doesn't matter much since USB is limiting factor, unless you're running a system.
Firewire 400: 28 - 34 MB/sec.  Drive RPM doesn't matter much since FW is limiting factor
Firewire 800: 55 - 60 MB/sec.  Drive RPM doesn't matter much since FW is limiting factor
internal drive on SATA II or III connection, or USB 3.0 external drive:
    7200 RPM: ~100 MB/sec
    5400 RPM (most laptop drives): probably ~70-80 MB/sec
SSD: 250-500 MB/sec if installed internally or over USB 3. USB 2 or firewire connection for an SSD is a waste of SSD speed *except* that they have fantasticly fast random access for reading many small files, so I got a really fast launching system in an experiment installing a system on an SSD and connecting it via FW 800 - but that's not relevant here
so - to make a short story long - do whatever works for you. avoid using USB 2.0 or firewire 400 drives if you're editing HD - you can't play transcoded ProRes 1080p footage from them reliably. And once you have more than one clip overlapping, like at cross dissolves, you're sunk. You're internal drive is likely much faster, even with the overhead of the system using it too.
Blackmagic Disk Speed Test on the app store is a good HD speed tester. Ignore all the video specific stuff at the bottom - its mostly for uncompressed video, which I doubt you're working with.
Since i have a recent macbook pro (late 2011) and my edits are usually not more dense than 3 layers of video at a time (mostly concert video rather than narrative film), I actually almost never transcode, or even render - and this is for 1080p HD video - because FCP X is so good at playing the imported original h.264 files. I store my media I'm working with on my internal laptop drive (which i upgraded to a 7200 RPM) or a FW 800 7200 RPM external drive.
h.264 files from the camera are much smaller than transcoded ProRes files, so they will play back from USB 2 or firewire 400 drives, but I would only do it in a pinch.
enjoy your editing.

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