Posh won 3-2 to move a point clear of trouble and leave Championship survival in their own hands, but both Watford's goals came late on when they were down to 10 men.
Ferguson said: "For 70 minutes we were absolutely outstanding but we were all over the place for the last 20 and that is not good enough at this level.
"Staying in this division could come down to goal difference at the end of the season and those two Watford goals could be costly for us.
"We stopped doing the things that had put us in control but I still have to give the lads credit for another great result. I felt before today that three wins would keep us up and we've got the first of them.
"With four matches to go our destiny is in our hands. We've been on a great run but have to keep that pedal pressed to the floor and continue upping the ante."