At the arena, there should be 2 people fighting hand to hand. Go near them and watch them. You will get a message after a while saying you learned by watching them.

Is this in the Imperial city? Is there also a place for watching a couple fight with blades for the extra points there too? The clue book say there are two fighting north of the arena but doesn't tell which town. Looked in the imperial city and haven't found them yet.

The people training with swords might be in cloud ruler temple two blades training with sowrds in the courtyard