Something has to be using the chlorine and since you lost some overnight, it wasn't the sun so there may still be some algae in there. I would keep the level up at 10 as frequently as you can for a couple more days and see if you start to hold it better.

Also, while the level is below 10, you could let the kids in and shock after they are done.

Here's some threads to look at on high cl levels:

http://www.poolforum.com/pf2/showthread.php?t=1304
http://www.poolforum.com/pf2/showthread.php?t=650

Peter