Shock. The main purpose of shock fear is to startle the observer.
Example: A loud scream or a scary figure suddenly appearing out of a closet.
Paranoia. The purpose of paranoia is to make the observer feel nervous and unsure about his/her surroundings.
Example: A story about home invasion makes you feel chills when you hear a floorboard creak.
Dread. The purpose of dread is to create such a suspense that the observer is overcome with a feeling of personal dread. A feeling that something bad will happen. This is perhaps the most powerful form of fear—the stuff of nightmares.
Example: A horribly grotesque figure is rocking on the ground; you dread that it will look up at you.
Anonymity vs. Specifics
Anonymity. Using anonymous cities and people is often used by writers (namely inexperienced writers), who mistakenly think that the "not knowing" factor of it will be more likely to scare people. This is not always true; in fact, it can end up making your story more laughable. "One time in a little town there lived a kid who..." et cetera.
Specifics. Being specific can often be much more powerful than being vague. When people want to be scared, the idea that the story could be real is much more tantalizing than "it happened in the woods somewhere". Even if the place doesn't exist, clarifying where it happened, and to whom, can often make it far more unnerving.
How It Starts
Throw people right into the climax. This is usually not a good idea. A story beginning with "It's going to get me. This may be my last diary entry" is weak. Oh no! Something is going to "get" someone I know or care nothing about, and do something to them maybe! The story could be about Anne Frank, a grotesque kidnapper, or anyone. As a reader, we want to know details leading up to whatever mental picture you're drawing up for us. The point is, give your readers a chance to relate to the story you are trying to tell before punching them in the face with your climax.
Lead them in. Start things off a bit normally, and slowly interject foreshadowing into the story. Give people the sense "things are not normal, something's not right here..." and so forth. If you can build the suspense high enough, people will feel paranoid, and maybe start feeling dread. This isn't a skill that is developed overnight as an author. Crafting an atmosphere akin to your characters is integral to increasing this sense of dread. Immerse the reader, but make it scarier with letting the reader know that you intend to slowly drown them in the words you are immersing them in.
Building the Story
Subtlety. A little subtlety goes a long way. Reading about a gentle scratching on the window is a lot scarier than your window suddenly shattering. Seeing something out of the corner of your eye is scarier than opening your bedroom door and seeing a girl with no face on your bed (most of the time). The beauty of subtlety is that you can make it lead into something more obvious.
Example: The story starts with you seeing something out of the corner of your eye. When you go to look at at, it is gone. It then stops darting away so fast, and eventually you see the whole thing. This is a pretty generic setting, but you can see that the "something" is more terrifying now because your mind has already seen it before in quick passing. Or has it?
Don't drag it on. REALLY long stories either need to be incredibly well-written or not written at all. The story needs to progress on, building on the terror the whole time. Not spending ten paragraphs reflecting on this one time you went to the store and saw a missing person's poster, and how you saw that poster at three other stores, but the name changed each time. That can be explained in a few sentences.
What Is Scary?
The Unknown. Tap into something unexplained and seek to give it a terrifying, and semi-believable solidarity. Things with no known answer are great places to draw from, rather than something totally explainable in common language. However, the most common things can also be given a terrifying twist. You're only limited to your imagination and how you can make a good story out of something largely unknown or something as simple as a garden hose with a sudden appetite for human feet.
Science. By talking technically, you can fool people into believing its authenticity.
Children. A story about a child is scarier than one about an adult roughly 80% of the time. This is because children are usually viewed as innocent. Be careful not to victimize them ridiculously though (if your story involves this), as many readers will dismiss it as garbage and might be offended. There is a fine line between story and outright fictional exploitation here that shouldn't be crossed. Tact and good storytelling go hand in hand with this one.
Mirrors. Mirrors have always been popular subjects of horror, and for a good reason. They allow us to see ourselves, but as fun-house mirrors show us, things aren't always what they seem.
The Unclear. Static, blurry photos, etc described to the reader, but not in huge detail. This gives people a chance to let their mind wander. If their mind is in the right state (where you put it - one of paranoia), these unclear things lead them to their own horrific conclusions. This is what sets the good writers apart from the great ones. Since (most times), you're only providing your words to the reader, quite often what you don't tell them is what is by far, the scariest. As an example, think of looking at a painting from a distance. You notice the brighter, broad strokes, but are forced to perceive what the finer details might contain. Use that analogy when writing horror. It can only work to your benefit.
Abandonment. An old abandoned house or place can be wondered about. Who lived here? What were the people like? Does something perhaps remain in the walls? Even a bright, cheery house can be a mere illusion for misinformed characters.
Faces. Eyes, teeth, and smiles can all be described in such a way that they unnerve people.
Pictures. Whether it's a Victorian painting where the eyes move, or a digital picture where your friend has a 666 on their forehead, pictures are thought to be static and still, and when they aren't, it's scary.
Technology. Technology is an expression of man's control over the known world. When technology acts strangely, it can be scary.
Death Is Overrated
As an Ending. "He died because it killed him". If you feel betrayed because you just spent half an hour of your life building up to an ending like that? You're not alone. There's a reason. Dying isn't scary in and of itself. It's so overplayed that people are immune to it. Someone going missing is better than "they found him two weeks later".
As a subject. "People mysteriously kept dying" isn't scary either.
Same with murder. Unless the murderer is outstandingly sadistic, writing about a serial killer is overdone.
Should We Fight "It"?
Yes. Some characters try to fight against "it", and always fail. In a way, it has become a cliché. It is also slightly unreal – most people, when confronted with something scary, would be too afraid to fight back, lest they anger "it". Also, the "thing" the characters fight is vastly more powerful, making this scenario unbelievable most of the time.
No. Most characters try to hide from/ignore it. This is usually better, as it lets "it" become harder and harder to ignore/hide from.
They don't know about it. This has epic potential. You know in movies when the view changes to behind the bush and is moving a little? We know something else is watching, but the character doesn't (this is also known as dramatic irony). When done right, this is horror at its best; when executed poorly, it's terrible. So be careful.
You are the hero. "Hero" in that you are the person shit is happening to. When people are scared (like the narrator), they have heightened senses. They can suddenly hear the quietest winds and the lowest whispers. Rely on the details to set the mood; when the activity is happening, try to only reveal what the narrator knows. Don't use "later I found that", "little did I know", "but it turned out that", etc. Only what is experienced first hand should be used.
Second Person. "You", the reader, are being led along. Be careful with this. At its best, it can scare the shit out of people; at its worst, people will laugh at you. And it's usually at its worst due to the fact that second person perspective stories have to perform a balancing act with description and character development in order to not alienate the audience.
Third Person. The easiest and arguably the best. Never TELL US; always SHOW US. "John started to get scared" vs. "John closed his eyes and started humming a cheerful song to himself, but he had to keep stopping to swallow his own spit. Each time he stopped, he closed his eyes even tighter.
Punctuation and Language
Proper usage. Always (make an attempt to) use correct punctuation and grammar (when possible and/or necessary)! A well-placed comma, hyphen or question mark can really make a difference. Notice how alljokestories are written in ALL CAPS and have no punctuation? When you eat fine food, do you shovel it in as fast as possible? Or do you take moderate bites, chew, and swallow at decent intervals? (NOTE: This usually applies mostly to third person; first and second person have more options.)
Repetition. Repetition has always been scary, but redundancy can sink a story. Try to be careful not to use it too much as the reader might "repetitively" ignore any future works from you.
Regular movement. "It started to run at me." Effective, assuming you intend to have whatever it is make contact with its target the first and only time.
Irregular movement. "It started moving slowly towards me; it was writhing, twitching..."
Non-movement. "It sat there, unmoving, unblinking..."
There is always a perfect way to say something; you just have to find it. Consider the implications of the following line:
"It began to twist its body into impossible shapes." "It began contorting its figure into strange positions."
Ending your story
Leaving it open-ended. Adds to the paranoia because people aren't sure where "it" went; all they know is that it is still out there somewhere.
Wrapping it up. It can conclude the story. It may not leave them scared, because they know the evil spirit was sealed away.
What happened? Try to be clear on what happened; even if nothing happened, be clear about it.
What exactly did happen? End it on a mysterious note – one that is both confusing and slightly "leading" can be very effective. Be careful about this.
How to start a story
Start from the end, not the beginning. Get the scary idea in your head, and go backwards from there. The most important part of a story is the scary element, so make sure that is the main focus and is developed before anything else. Try something that scares YOU. That way you know more about it, and the feelings and nuances said thing creates, so you can develop it correctly.
Put that thing into a non-scary setting; develop your surroundings.
After that, then you can worry about characters.
Write an outline.
Use the previous tips to deliver a coherent story.
Read it over as if you were a critic reading it for the first time. Do you understand what was happening pretending as if you had no prior knowledge of the story? Would you laugh at you or criticize major elements in the story? This is a great method for finding flaws in your story and improving it before submitting it to a wider audience.