Smith took over the reins of the national team last year after Michael Clarke decided to hang up his boots but recently his captaincy has come under the scanner after a dismal 3-0 Test series defeat in Sri Lanka followed by a 5-0 One-Day International whitewash by South Africa.
Waugh, who captained Australia in 57 Tests thus says the results of the upcoming series can decide Smith’s future as captain.
"You always have a honeymoon period, the first six to 12 months, everything is fantastic. You make all the changes and they work. Then the reality sets in and it's a bit harder than that," Waugh told Tuesday's Sydney Morning Herald.
"I think losing that series in Sri Lanka probably was a bit of a shock to the system. I thought the fielding was very poor, which is unlike Australia, and that sort of set the benchmark for the rest of the cricket they played."
The 1999 World cup winning skipper also said that he believes Smith has the capacity to respond when the going gets tough and believes he has already made plans regarding handling challenges against South Africa and Pakistan.
"(Smith) will be having a good look at himself, his captaincy style, which players he wants in the team," he said."These six Tests in Australia could well define his captaincy going forward.”"I think if they have a good series in Australia and the team stays stable and they respond to his leadership then it's great for him.
"But if things don't go well it will be a challenging time for him particularly after the last few losses."
Waugh also pointed to the fact that Australia were unusually quite in their series against Sri Lanka and believes the faster they can go back to being chirpy the better it is for the team.
“We were too quiet in that series against Sri Lanka. We need more enthusiasm. More energy and more talk,” Waugh told news.com. “The game’s always been the same. There’s always been talk,” he said.“I hope it’s still played in the same spirit.
Speaking about sledging he said, “It (sledging) has always been part of the game from the very beginning.”
“Every team does it. You have to play the Aussie way. We play aggressively. We play positively. We like a bit of chat and that’s the way we’re brought up and that’s the way we play cricket.
“That’s the Aussie way. As long as it’s not personal and it’s clever it’s fine. In my experience, 95 percent of the talk is about encouraging your own teammates.
South Africa will start their tour with a Test match at Perth from November 3 and then would move to Hobart and Adelaide for the other two games.Pakistan start off with their Test in Brisbane on December 15 and then play the other two matches in Melbourne and Sydney.