Newcastle's second-string take on their local rivals in Division Two at St. James' Park on Friday night (kick-off 7pm GMT) and go in search of a third successive win in all competitions.
Following an emphatic 4-0 victory at Swansea City and Premier League Cup win at West Bromwich Albion, Walters believes morale levels in the camp are high but admits the squad must play the game and not the occasion against their North East neighbours who are winless in their previous 16 league matches, 15 of which have ended in defeat.
"I'd say playing against Sunderland at St. James' Park is probably our biggest game of the season," the 19-year-old told nufc.co.uk. "Other than if we managed to get to a final in other competitions, this is definitely the biggest game for us in the league.
"We're looking forward to playing against Sunderland a lot. As soon as we got off the pitch against West Brom (on Monday) and onto the bus, everyone was saying that they cannot wait to play on Friday.
"The confidence is high within the group. We scored four goals against Swansea, kept a clean sheet and then won 1-0 at West Brom. It's been good lately and we've been playing well. Keeping clean sheets is something that we've been looking to improve on and to see that happening is great.
"We need to make sure we keep our heads in the game. Ben (Dawson) has already spoken to us and told us to concentrate and do what we have been doing for the past couple of weeks.
"We don't want their first win to be against us. In a derby game, anything can happen so we need to be really focussed. If we focus and do what we have been doing recently, then the result should take care of itself."
United's last meeting against the Black Cats came back in October, with goals from Luke Charman and Victor Fernández securing a 2-0 win at Eppleton, with Walters playing the full 90 minutes.
However, Walters - who has also captained the under-23s for their last four matches - is yet to face Sunderland at St. James' Park, with the teenager an unused substitute during the Magpies' 5-0 thrashing of their Wearside counterparts in August last term.
The teenage left-back added: "I cant wait to get onto St. James' as it's been a while since we last played there. I think it was against Swansea (in September) when we last played there so I'm looking forward to it and hopefully it'll be a good game and we can get the win.
"Being captain for the team has been great too. I've been loving it, really. The results have been good for us and it's been really positive. If everything goes well, we can come out on top.
"Since under-nine level, I've played against Sunderland and it's always a big game and a one you really want to win with them being your local rivals. It does means a lot more.
"A lot of the lads have been here for years and years. They've played Sunderland since a young age and we tend to have a good record against them so we'll be hoping to keep that going."
Admission is free for season ticket holders and members, otherwise it's £3 for adults and £1 concessions.
