A new method for driving the hydraulic free piston engine is proposed. This method achieves the compression stroke automatically rather than special recovery system. Principle of hydraulic differential drive free-piston engine is analyzed and the control strategy of this novel hydraulic driving engine is also introduced. Then energy balance method is used to design the main parameters of the novel engine. High pressure and secondary high pressure of the hydraulic system are constrained by the combustion parameters and therefore parameters are analyzed. In order to verify the effectiveness of energy balance method, the mathematical model is established based on the piston force analysis and engine working principle. The transient results of dynamics are obtained through simulation. In addition, the effectiveness of the simulation is proofed by dimensionless analysis. It indicates that energy balance method realizes the basic performance of hydraulic free piston engine.