The Saints face a top four side for the third time in four weeks after matches against Geelong in round 18 and Hawthorn last week.
Watters said his side had grown in confidence after recent outings and was eager to test itself against the Swans.
"I think our players, particularly six or seven players last week who were under 10 games, their confidence grows almost on a weekly basis.
"It might only be a quarter that Tom Curren was able to match it with Sam Mitchell, but that could turn into two quarters this week and three quarters the following.
"The likes of Hannebery, Jack and Kennedy are very mature and outstanding midfielders; it's a great opportunity for our young players to go head to head with some of the best players in the competition."
The Saints matched it with the Hawks in all but the second term, when they were outscored by 33 points.
Despite Hawthorn's 46-point win, St Kilda won the contested possession count 119-110.
"That will be one of the areas we focus on and certainly one of the Swans strengths. It's a great challenge," Watters said.
"It's certainly one of our barometers on weekly basis. If we win contested ball for two or three quarters against Sydney, you know our younger players have done a lot of things right.
"We said last week we won't be hiding them from those opportunities; it's a great litmus test for our group."
The two sides met in round five with the Swans claiming a 16-point win in the historic ANZAC Day clash in New Zealand.
The Saints took it up to the Swans at Wellington's Westpac Stadium, winning the contested possessions, tackles and centre clearances.
"Early in the year it was a pretty a committed performance in New Zealand - our games (against the Swans) have been pretty competitive," Watters said.
"I spoke to Josh Saunders yesterday and he is really excited to go and test himself against them.
"He has never played at the SCG so there is a level of excitement, but we understand the challenge that's ahead of us.
"We will deliberately pair up some of our players with their key experienced players and measure off that at the end of the day. They are tough experiences but that's how you learn."
Stephen Milne and James Gwilt could return on Sunday and add much needed experience to the Saints line-up while Ahmed Saad, Beau Maister and Sam Gilbert will also face fitness tests tomorrow.
"Whether they are ready to play at this level we will wait and see," Watters said.
