The Anfield outfit currently sit one point adrift of league leaders Chelsea, while Manchester City - two points further back in third - have two games in hand.
But, ahead of Spurs' trip to Merseyside on Sunday, Sherwood has warned Liverpool that they must believe they can lift the trophy and not allow the pressure to have a negative effect on their performances.
"They're very, very close - one point off the lead and absolutely flying," he said. "They've got a strike partnership in Luis Suarez and Daniel Sturridge that's the best the Premier League has seen for a very long time, and they've given themselves a real chance.
"Now they have to believe they've got something that might fall through their grasp and slip away and - believe me - that's a real bad feeling to have because perhaps you don't play with freedom you'd played with earlier in the season. I know what it's like myself.
"It all depends on how they can hold their nerve. City and Chelsea have to be favourites because of the players they have who've crossed that line and done it previously.
"But Liverpool have gone from seventh last year and must be believing they can actually win this Premier League title."
Tottenham currently sit sixth, seven points adrift of Arsenal in the fourth and final UEFA Champions League berth.
