With Barcelona and Atletico Madrid both playing on Sunday, Real can reach the summit of the table for the first time this season by beating Granada.
Ancelotti's side are just a point behind the joint-leaders following a run of nine wins in 10 league games.
Yet although the Italian is excited about potentially taking over top spot, he insists his players must stay focused and give Granada the respect they deserve.
"It is a good feeling," he said. "We are doing well and the work of the players has improved.
"We have a great opportunity, but every game is difficult and you have to prepare and play well, stay focused on the game and try to win.
"We have to look at ourselves, not others. The calendar gives us the opportunity to be leaders, (it) can be for one night only (but) tomorrow is a big game for us."
Ancelotti has also praised the work of assistant coach Zinedine Zidane on the training pitch, and believes Real are beginning to see the benefits of his efforts.
"Zidane's work is important, it is a major help," the 54-year-old added. "He has charisma and personality.
"He talks to the forwards, and the work being done with the young players is bearing fruit."
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