My brother recently made a blog post describing and analyzing the basic grading requirements of the Canadian Kendo Federation (CKF). The article can be found here: http://tenshoiaido.blogspot.com/2011/10/grading-requirements.html
While reading, it came to me that it might actually be more challenging to decide whether a person has the ability right to take the examination, than to judge in the examination itself. It is definitely more important for the sensei who's student is grading, than the sensei who's judging said student. The latter simply decides whether the pre-determined bar has been reached, while the former must take into account the student's motivations, goals, and other emotional and psychological needs.
From my experiences in Iaido and Kyudo, there exists several aspects of training that can be judged:
1. Exterior Physical - The ability to perform the movements and actions as required by the art. Strength, speed, timing, and distance are all important characteristics.
2. Mental - The understanding one has of the circumstance and reason behind the Exterior Physical movements. A written exam is meant to test this understanding of the concepts and theory that are a result of training and thinking about your actions.
3. Interior Physical - This can also be described as "Depth of Practice", and is a direct result of hours, months, and years of training. Internally, one can feel this aspect when a movement is performed without conscious thought, like breathing, walking or grabbing a mug of coffee. Externally, you can notice this in a martial arts practitioner when they perform the techniques with minimum effort and maximum efficiency.
4. Spiritual - I would describe this aspect as the inherent attitudes that are gained through the culture of the dojo, the people, and the etiquette of the martial art. Respect for the place of practice, the equipment and your fellow practitioners translates to a respect for oneself, and finally the understanding of one's place in society as a whole.
A student with a clean slate (an empty cup?) would naturally move from one down to four as they progress in their training, as each aspect takes cumulatively more time to attain. The situation becomes muddled when people come into a martial art with previous experience.
The natural athlete would be able to nail the Exterior Physical aspect to a much higher level than normal, and in a much shorter time. They may exhibit a preciseness of movement beyond even the seniors of a dojo.
The scholarly type would have a head start in the Mental Aspect but, perhaps, may have no physical prowess. Through study, they're overall understanding of the martial aspects will be superior to all who treat the training as mere exercise or a hobby.
The long-time martial artist may not learn the "dance steps" as quickly as the natural athlete, but will show the Interior Physical aspect much sooner, even when their movements are rough. Appropriate use of breath control and Ki flow will be evident.
And finally, a buddhist monk or, in the case of Iaido and Kyudo, any Japan raised practitioner will have a head start in understanding the Spiritual aspect that comes from all the etiquette surrounding the training.
So how does one prioritize these aspects when determining the requirements for a grade?
What is the goal of the organization? of the instructors? off the practitioners?
