The idea of the CAGED System is that the open chord shapes can be moved up the neck in order (spell out CAGED). There are books on this topic, I am just going to cover the very basic idea here.

For instance, if we start on C major, just the basic C chord in the open position.

Using CAGED the next letter would be A. That means make a C chord out of the A chord shape. We do this by playing the root note (5^th string) on the 3^rd fret.

The next letter would be G. Make a C chord out of the G chord shape. We do this by playing the root note (6^th string) on the 8^th fret.

The next letter would be E. Make a C chord out of the E chord shape. We do this by playing the root note (6^th string) on the 8^th fret.

The next letter would be D. Make a C chord out of the D chord shape. We do this by playing the root note (4^th string) on the 10^th fret.

If we did the same exercise as above for G major in the open position. Since we start on G root note (6^th string) on the 3^rd fret. The next letter would be E. Make a G chord out of the E shape. We do this by playing the root note (6^th string) on the 3^rd fret. And so on spelling out CAGED. C would come after D if you have to circle back around again.

The other interesting thing is if you look at the patterns for the major scale and the pentatonic scale these also follow the CAGED structure. You can use this system for any key that you are in. It’s a great help for soloing, finding triads, chord inversions, arpeggios, etc.