The Ping Pong strategy targets sideways markets, trading when price moves outside a range, on the assumption the market is over extended and price will revert back towards the mean.
It therefore works when price is bouncing back and forth between the envelope extents, hence the name Ping Pong.
The range is specified as a moving average envelope, the periods and width of which are available as external parameters to be optimised for the instrument you are trading.
Only a single position can be open at any time to better manage risk. The target envelope is also available as an external parameter and will tend to be close to or identical to the entry envelope. Any open position is checked each tick and will be closed if price has left this envelope.
They key is to not trade in trending markets where price continues outside the envelope. The stop loss is set fairly wide to allow the market to breathe, so getting stopped out will tend to offset profits from a handful of tighter winning positions.
Rather than using momentum indicators to determine whether safe to trade, we’ve seen better results by restricting trading to specific times, and optimising the start and end hours so we trade only on instruments known to be quiet during that period.
The script does not trade on Fridays in order to avoid positions being help through the weekend and subject to unpredictable price gaps. It also only trades when the spread is within a specified threshold, available as an external parameter.
We’ve had particularly good results on GBP/CAD with the default external settings.