Tuesday's 3-2 loss saw Wanderers fall back into the relegation places - just one position and one point above the Saddlers.
"It's a game against a team that's close to us in the league table - it's massive for both clubs," Waddock told Wanderers' official website. "We didn't get a result against Yeovil, which means this game has become even bigger.
"Walsall are at home and they'll believe they can put on a performance and get a result; we have to show a reaction to pick up three points.
"As a group we have to stand up to the challenge. It's times like this when you find out a lot about people."
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