The 22-time Grand Slam winner crashed in his season-opening match at the mixed teams United Cup in Sydney to 12th-ranked Cameron Norrie and then again to Australia's Alex de Minaur.
Against the Australian, the Spaniard dropped six consecutive games after leading by a set and 1-0.
The 36-year-old top seed faces a testing first-round clash at Melbourne Park on Monday against emerging 21-year-old Briton Jack Draper, who reached the Adelaide semi-finals this week.
"Probably one of the toughest first rounds possible... young, powerful, growing very, very fast in the rankings, playing well," he said.
"A big challenge for me at the beginning to start the tournament. Let's see. I'm here to just give myself a chance. I know he's playing well."
Nadal has lost six of his last seven matches stretching back to defeat to Frances Tiafoe in the last 16 at the US Open.
Asked if he felt vulnerable, the defending champion admitted: "Of course, without a doubt.
"I have been losing more than usual, that's part of the business. Just accept the situation. I think I am humble enough to accept that situation and just work with what I have today.
"I need to build again all this momentum. I need to build again this confidence with myself with victories. But it's true that I have been losing more than usual."
Nadal, who recently became a father, swept past Russian Daniil Medvedev to win the Australian Open and a 21st Grand Slam title last year in an epic five-setter.
That victory came after arch-rival and nine-time Australian Open winner Djokovic was detained and deported ahead of the tournament after refusing to get vaccinated for Covid-19.
The Serbian star, looking to equal Nadal's record-breaking 22 Slam titles, is back this year and in top form after winning the Adelaide International I event last week.
That followed another ATP Finals crown in late 2022.
- 'Djokovic favourite' -
Nadal told Spanish reporters that his long-time rival was the clear favourite.
"Djokovic seems to be very well prepared. He got great results at the end of the year, he has also started the year winning. It is a tournament that has always been good to him," he said.
"If we talk about favourites, on Saturday before the start of the tournament, there is no doubt that he is the top favourite to win the title.
"But tournaments are not won on the Saturday before, you have to work for two weeks, although he has shown that he knows how to do it very well.
"If he wins, we will congratulate him, he will have done something historic, and that's it. My life is not going to change."
Despite losing his only two matches this year, Nadal insisted he was improving by the day and had practised more in the last few weeks than ever before.
"My personal momentum is not bad, I tell you. I am good and happy. I'm practising well," he said.
"I feel faster in the legs. I feel I'm playing better with more confidence," he added.
"The last three weeks of preparation here have been very positive from my point of view."
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