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It's a difficult setting, but it could be done. The point of psychological horror is showing emotional disturbances, psychologic disorders, and provoking a certain feeling of anxiety in the reader...
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Source: https://writers.stackexchange.com/a/45359 License name: CC BY-SA 3.0 License URL: https://creativecommons.org/licenses/by-sa/3.0/
#3: Attribution notice added
Source: https://writers.stackexchange.com/a/45359 License name: CC BY-SA 3.0 License URL: https://creativecommons.org/licenses/by-sa/3.0/
#2: Initial revision
## It's a difficult setting, but it could be done. The point of psychological horror is showing emotional disturbances, psychologic disorders, and provoking a certain feeling of anxiety in the readers. **Monsters can be there,** but they can't be your focus, or they must be clearly simbolic in nature. For example, the film _Babadook_ a monster scares the main characters for most of the movie, but in the end it's clear that > the monster represents how difficult it is to come to terms with the loss of a loved one. The golden rule is that **conflict and fear must come from psychological sources**. So, while is fine adding a physical monster who represent those sources can be done, it's a little risky. Having a physical, external and even supernatural menace can make your story look more like an action movie or another kind of horror. For example, you could write a character struggling with depression, and portray depression like a looming creature that physically blocks that person on the bed. It may be effective, but **you risk shifting focus from the psychological stress to a physical, much more tangible menace**. Arguably, all the classic zombie movies leverage our modern fear of repetive, mind-numbing, consuming urban lifestyle. Zombies could be seen as a metaphor of the modern workforce, shuffling step after step while rotting away. Yet most zombie movies aren't played as psycological horrors, but survival ones (aside from being their own subgenre). So, while your concept is viable, I'd be careful to put forward the psychological struggle of your character rather than shifting the focus on the monsters themselves. Again, I believe it would be rather difficult, but that's my opinion.