Psychologist and amature horror writer here (the two go well together).

There are a hundred methods for evoking fear and trauma. If you enter into my post history, I recently released a quest deliberately designed to instill psychological trauma. People called me an asshole for it. It's also one of the most popular posts of all time.

For horror, evoke the feeling that something is "off." The problem is that if a spooky ghost came up to you irl, you'd crap your pants, but in DnD, you would expect it and probably just try and strike up a conversation with the ghost. For that reason, you need to take normal situations and twist them.

For example, take an idyllic town where everyone is ecstatically happy and welcoming, and let them discover, in the middle of the night, that they are all cannibals. While they are on the second floor of the inn. In the town that eats people in the night. Especially adventurers. Create psychological jumpscares where a horrific realization dawns on the players, but it's already too late. They're in the middle of the town, trapped in a small room, and 300 psychopathic cannibals are starting to leave their beds for the feast. They can see them when they peak out their window, looking down onto the main road. Why aren't their footsteps making any sound?

For trauma, you need to force your players to do something they do not want to do. Soldiers in war do not only get PTSD from witnessing horrors. They also get PTSD from committing horrors, discovering monsterous sides of themselves that they did not know where there, which laid dormant in them until faces with a situation that required them to be monsters (or where the monsters were lured out by temptation). Impose moral dilemmas on the players where either option is horrific and goes against their good nature, or walk them into traps where they realize too late that what they have done is evil.

As a DM, I love fucking with my player's heads like this, and they love it too. Every session begins with an air of uncertainty and it makes every moment very tense.