If I look at Real Madrid and how they won the Champions League a while ago, I have an optimist. Real Madrid just have to keep going to the next 16 rounds and win it, after they are able to perform it and go to the next quarter and semi-final, we will see the real king of the Champions League. Yes, Real Madrid will look mighty if they are already in the semi-finals. They will show their true strength in front of their opponents. This is very often happens, and there are many surprises when they meet a big club on that round. That possible we can see Real Madrid and Liverpool meet, and Real Madrid will won it with penalty shootout.
Yes Real Madrid has good chance of doing well in Champions League. They have been successful in past especially when they won title recently which shows they can handle pressure. If they can get through next round and make it to quarterfinals and semifinals, they will definitely be strong team. Real Madrid usually plays very well in big games and possible game against Liverpool would be very exciting. Even though we can not know for sure what will happen Real Madrid experience and skill make them strong team that could go all the way.
Real Madrid are a very good team in the Champions League but based on their recent performance, they need to improve their performance further. Although they are a very strong team, their performance this season does not reflect the influence of such a strong team. According to your statement, Real Madrid usually plays very well in big games, but we haven't seen that recently. Real Madrid lost the match they played against Barcelona before, and they also lost the match they played against Liverpool. So it's never certain that Real Madrid can play well in big matches. This team is still far down in the UEFA Champions League points table, so perhaps we shouldn't have high hopes for this team.