A novel approach that utilizes numerical simulations of train-track interactions to determine the placement of sensors for the condition monitoring of railway switches has been demonstrated. The locations on the switches that would need to be monitored for the development of a specific RCF fault were obtained by utilizing the results from holistic MBS train-turnout interaction simulations in a damage prediction model. A detailed three-dimensional (3D) solid Finite Element (FE) model for replicating the similar track dynamic behavior and rolling contact interaction as the holistic MBS model was developed and validated. A 3D squat fault was introduced into the railhead of the FE model and simulations were run to help determine the placement of strain measurement sensors on the rail to detect its development. The results for the contact forces, Von-Mises stress and the engineering strains have been obtained from the simulations to help estimate the placement of sensors for the effective detection of the RCF squat fault.