On Thursday the defending Primera Division champions take a 2-0 lead to the Bernabeu, where they will face Real Madrid in the second leg of a Copa del Rey round-of-16 tie.
Real will take to the field for the first time since Cristiano Ronaldo received his third Ballon D’Or.
“We know that we are weaker than our rivals in terms of players,” Simeone told Spanish TV station Canal . “But we know who we are and that is our virtue.
“The day we think we are better than them, we will concede four goals.
“We have to realise that Real don’t stop and if they can score six goals against you they will.
“You cannot get annoyed when you have conceded the fourth goal, get annoyed when the score is goalless.
“I know my players play them (knockout games) well, because it’s a do-or-die situation and my players are not afraid of death.
“My players are very competitive.”
Simeone led Atletico to their first league title since 1996 last season while the Rojiblancos also finished runners-up to Real in the Champions League.
“Obviously what we did last year was unmatched,” the Argentinian said. “We are doing well this season but I know that we can improve.
“The team is going from less to more.
“I really don’t know where our top is .
“Our aim is to finish third because that is what the club needs and it’s important for us to grow as a club.”
Simeone welcomed this month’s arrival of Fernando Torres to strengthen Atletico’s attack.
The 30-year-old forward rejoined Atleti on loan from AC Milan seven and a half years after leaving the Vicente Calderon for Liverpool.
“I know he is going to bring something extra because he wants to,” Simeone said. “He is loved and people respect him.
“He is coming here to compete and he faces a beautiful challenge.
“I believe he will give us a big hand.
“He wants to continue his career and he brings a lot of possibilities to this team.”
Atletico are third in the league table, four points adrift of league leaders Real, who have a game in hand.