The differential 4-quadrature (D4Q) coherent optical system which does not
need absolute phase information is proposed. The input information is encod
ed in the relative position of the present symbol with respect to the refer
ence frame constructed by the previous 3 symbols. The general theory of the
system operation including encoding and decoding is presented, This system
does not need to track the fluctuation of the states of polarizations whic
h is essential for most other polarization modulation systems. As an exampl
e, the l-symbol D4Q system is described. And the saddle point approximation
is applied to estimate the bit error rate performance. The analytic approx
imation agrees with the simulation results very well.