Moving the Arrow

Look for the "Hot spot" tool in the toolbar, select it and click a pixel that should be the clicking point.

Or drag the image in the test window.

I tried to do what you said but it won't let me click outside the picture.
Can't figure out what I'm doing wrong.

Yes, the hot spot may only be inside the picture.

So how can I put the little arrow on the upper left hand side outside the picture like other cursors have?

You would probably need to have the picture smaller than the canvas and move it (for example with the Transformation tool) to the lover right corner and then draw and arrow in emptied the upper left corner.

Thank you for your replies.
I figured out how to add the arrow by putting it in the image and saving it as a png file before I actually bring it into the program.
My problem now is the picture is so small I can't even see the face.
How can I make this cursor much bigger?

While the editor allows you to create larger cursors, Windows will shrink them back to 32x32 pixels before displaying them. The only way is to workaround the Windows limitation by relying on tools like CursorFX.

Bummer!
So what you are saying is I have to install a whole different program?

RW Cursor Editor is for creating cursors.

Windows cannot display large cursors on its own (that makes sense, because cursor is primarily for pointing). If you need to use large cursors, then you need to replace part of Windows that is responsible for displaying the cursor. And CursorFX can do that.

It's starting to get too confusing and complicated for me.
This was only for fun and I wanted to surprise a few of my friends by making them cursors.
Guess I will just have to forget it.
Thanks again for taking the time to answer all my questions.

                    Much Appreciated!