Hi Kevin: Sorry for not making that clear. You want to dig your perimeter trench around the INSIDE of your basement wall. What I did was use a mattox (broad flat blade pick) to dig down about 18" or so, although this will vary from the highest point to the low point. Also, and I didn't mention this either, if you have a cinder block wall, you need to drill small (3/4" or so) holes in the bottom of each of the cinder block columns so any water that gets in those vertical 'holes' in the cinder block columns can drain down into your plastic drainage pipe....this is fairly important :-). Also, when you put the gravel in around the drainage pipe, be sure to tamp it down; a 2X4 tamper will work fine. When you pour your cement floor, you don't want the gravel settling and that part of your newly poured floor to also drop.
Some like to dig down on the outside of their basement walls, seal the outside walls with special rubberized sealers or trowel on 3" of mortar, and put down drain pipe. This is a tremendous amount of work, and won't help if you have water percolating up from under your basement.