In this paper, a new method for effective video coding is studied. Picture set filter is proposed for preserving compression ratio and video quality. This filter controls the compression ratio of each frame depending on the correlation to the reference frame by selectively eliminating less important high-resolution areas. Consequently, video quality can be preserved and bit rate can be controlled adaptively. In the simulation, to test the performance of the proposed coding method, comparisons with the full search block matching algorithm and the differential image coding algorithm are made. In the former case, video quality, compression ratio and encoding time is improved. In the latter case, video quality is degraded, but compression ratio and encoding time is improved. Consequently, the proposed method shows a reasonably good performance over existing ones.